- (a) be given at a greater rate than that of three shillings in the pound; or
- (b) be given, notwithstanding anything in paragraph (b) of Sub-section (2) of Section sixty-six of the Finance (1909–10) Act, 1910, for the purposes of Super-tax.
§ (2) The said relief shall not, as regards insurances or contracts for deferred annuities made after the twenty-second day of June, nineteen hundred and sixteen,—
- (a) be given except in respect of premiums or other payments payable on policies for securing a capital sum on death, whether in conjunction with any other benefit or not; or
- (b) be given in respect of premiums or payments payable during the period of deferment in respect of a policy of deferred assurance.
§ Provided that nothing in this Sub-section shall affect premiums or payments payable on policies or contracts made in connection with any superannuation or bond-fide pension scheme for the benefit of the employés of any employer or of persons engaged in any particular profession, vocation, trade, or business.—[Mr. McKenna.]
§ Clause (b) brought up, and read the First time.
§ Motion made, and Question proposed, " That the Clause be read a Second time."
§ Mr. McKENNA
The Committee are very well aware of the purport of this Clause, because I believe this is the third or fourth discussion upon it. I would like to answer various objections that have been taken to the Clause being made operative as regards existing contracts. It is said that in touching existing con-tracts we are engaged in retrospective taxation. I venture humbly to submit to the Committee that that is not a correct use of language.
§ Mr. McKENNA
Neither substantially nor technically. The Act of 1853 allowed Income Tax, in certain circumstances, to be deducted from premiums paid for life assurance. The Income Tax up to that 602 time was at a very low rate, and at no time until this calendar year, from the date of the passing of the Act of 1853, has the Income Tax stood at 3s. in the £. Every contract of assurance that has been entered into up to this year has been entered into in contemplation of deduction in respect of Income Tax of less than. 3s. in the £, and it cannot be said that any taxpayer who entered into a contract had at the time that he made the contract the anticipation that he would be allowed to deduct anything like 3s. in the £ from his premium. So much with regard to re-trospective taxation. It is perfectly open to the House at any time, without inflicting any injury, to cease to give the allowance which has been allowed to be given in the past, provided, in ceasing to give the allowance, the House does not take-back something which has already been allowed. The House is absolutely at liberty, without any question of breach of contract, or retrospective taxation, to refuse to continue allowances which have been made in the past. If there was anything in this doctrine it would be equally" true to say that it was retrospective taxation when the abatement in respect of Income Tax was reduced from £160 to £120 by this House, which, with enthusiasm, cut down the abatement. Yet the allowance, as is well known, of the £160 in respect of small incomes had gone on for years, and it was never alleged that it was retrospective taxation to discontinue that allowance in future years. Equally, it is not retrospective taxation, in any sense of the language, to discontinue an allowance which has been made in the past. So much for that point.
There is another aspect of the question. When this allowance was made it was made in contemplation of an entirely different system of taxation from that which we have to-day. I do not think it was ever intended-my researches at any rate con-firm me in the view that it was never in-tended-that this allowance should be given in the circumstances in which it is claimed to-day. It is not only in respect of Income Tax that the allowance is claimed. It is claimed in respect for Super-tax. The result of that claim is that those who pay Super-tax get an abatement in respect of their premiums of 8s. 6d. in the-£, if their Super-tax rate is on a maximum scale. I do not think that was ever in-tended, either when the original Act was passed in 1853, or when Super-tax was first introduced. I am sure I shall have the 603 general opinion of the House with me in the view that these premiums ought not to be free from the charge of the Super-tax. [An HON. MEMBER,: "Certainly not."] That is my opinion. The general opinion of the House, I think, will be with me when I say that it was not the intention of the original Act, or when the Super-tax was passed. I think the point was overlooked that premiums paid for insurance should be entitled to be free of Income Tax and Super-tax. I have listened to what has been said in the House, and I observe that there is a considerable opposition to this Clause so far as it operates in regard to existing contracts of insurance. I recognise that in the number of taxing Bills for which I have had to be responsible that this House has accepted with remarkable willingness immense burdens. I should, therefore, be the .last to refuse to pay attention to a general expression of objection to a particular form of tax. It is not as though I bad an unfortunate experience in that respect. I have found the House more than willing to submit. Therefore I am bound to assume that when a proposal of this kind is made, and there is serious opposition in various quarters of the House, that it is contrary to the sense of equity entertained by a number of hon. Members in the House. For myself, I think the proposal is right. That is my own view. To allow a deduction of 3s, in the £ in respect of premiums is going as far as ever was in contemplation when the principle of deduction in respect of premiums was first allowed. A change is necessary now, because we find that it is impossible to prevent unfair evasion of the tax, unless we in some way or other limit the amount of deduction in respect of Income Tax in regard to future contracts. Of course, existing contracts would not be evasion. Companies, however, tell us now—and from our own experience it is so—that most unfair contracts of assurance are now being entered into merely for the purpose of avoiding Income Tax.
§ Mr. McKENNA
Only by a few companies, my hon. Friend says. May I tell him this, of which he is, perhaps, not aware? The companies that have not done it are as urgent as anybody that the practice should stop. They are saying that if it is not stopped their business will be 604 unfairly competed with by the few companies. When my hon. Friend said a few companies only he must not suggest
§ Mr. McKENNA
They are very anxious that it should be stopped. I am sure that the public at large are equally anxious that it should be stopped, because the honest man does not wish to have to pay higher taxes because the dishonest man evades his share. It is common ground that we have to take some measure. I recognise the feeling evinced with regard to existing contracts. I am prepared to make this offer: I will agree that with regard to existing contracts the only alteration for which I shall ask shall be not in respect of Income Tax, but in respect of Super-tax. I think that an amendment of the law ought to have been made when Super-tax was first imposed, I do not think it was ever intended that a tax in the nature of the Super-tax should be deducted on account of insurance premiums, and if the House is willing to accept
§ Mr. McKENNA
Existing policies of insurance will be left standing except as regards Super-tax. The Clause shall be made prospective only outside the Super-tax. With regard to future contracts, the proposal will leave all cases of persons paying up to £2,500 a year quite untouched. Persons with an income between £2,500 and £11,000 who make an insurance will be deprived of the benefit of the maximum; they will lose the Super-tax on this graduated scale of deduction. I submit to the Committee that this is a fair offer. A feeling has been shown that this should not affect existing contracts to the extent of Income Tax, and I ask the Committee to agree with me that we should tax existing contracts as regards Super-tax. I hope what I put forward will be accepted as a fair compromise.
§ Sir J. D. REES
I think the right hon. Gentleman has met the case very fairly, but, for my part, I am unwilling to leave the position as regards the Super-tax where he would leave it. It seems to me 605 it is not fair to make a distinction in this matter between Income Tax and Super-tax. While I regard the right hon. Gentle-man's conduct in this matter as reason-able, I do not think he can establish any true distinction between Income Tax and Super-tax in this matter. If he can, he did not do so. The right hon. Member for Spen Valley (Sir T. Whittaker) raised a specious point about the effect of the tax upon the rich and the poor. Who are the rich and who are the poor? A rich man is one who has all the reasonable requirements of his mode of life. A poor man is a man who has not got them. A man who is accounted a rich man may become poorer and have less money to spend than a poor man who is getting richer, which I I believe to be the broad state of the case now. If, however, my Amendment, which raises the point as regards the Income Tax, will be in order, I do not think I shall be right in taking time now in speaking on this point.
§ Sir E. LAMB
I want to say for myself quite frankly that I appreciate the con-cession made by the Chancellor of the Exchequer. I felt there was much in the argument adduced last night and the night beforehand I felt that possibly we were asking rather more than we should probably succeed in securing, and that was why I put down the Amendment on the Paper to alter "three" into "five.'' That would have had the effect of the Chancellor of the Exchequer's concession. For myself, I appreciate this concession, and I think we should express that appreciation as we feel it. But I want to point out one thing in connection with this. I believe I am correct in saying that, largely owing to pressure from the Government, insurance companies at the outbreak of war took on the added liability consequent on the War of men who were then insured. In other words, policies that were then running on the lives of men who had never any thought of going to war when they took out those policies naturally become an added liability on the part of the company, and I say quite frankly, as a director of one of the insurance companies, I thought that added liability should be borne by the whole country—that is, the Exchequer-because as that added liability is taken by the 606 companies, it means that their profit-earning capacity is thereby reduced. That has this effect: Policy holders who have been anticipating taking their bonuses in the form of reduction of premiums are having the bonuses reduced, and, at the time when they most need relief, they are prevented from getting it because of the action of the Government in asking insurance companies to take over this added liability for which they were really not responsible. I ask the Chancellor of the Exchequer to bear in mind the voluntary act of the insurance companies in taking on this added liability at the request of the Government when he is considering the further aspect of this Clause. I under-stood him to say that his proposal would clear all income up to £2,500 a year. I would point out that it would clear all in-come up to a penny short of £3,000.
§ Sir E. LAMB
So that it really means we have by this agitation in the House secured the continuance of this concession to existing policy holders who have incomes up to £3,000 a year. For that reason I gladly accept the proposal of the Chancellor of the Exchequer, and shall not move my Amendment.
§ Sir E. CARSON
I am very glad that the Chancellor of the Exchequer has been able to come to a conclusion to make some concession on this matter. Certainly I myself felt very strongly about the Clause as it was originally brought in, and I was prepared-and I took some trouble in asking some of my friends to co-operate with me-to resist this Clause as it stood to the very utmost. The proposal of the right hon. Gentleman is not a very logical one. What I mean is, the ground upon which we put our objection to the Clause was
§ Sir E. CARSON
The objection that we put was that companies issue the most magnificent prospectuses demonstrating to people the advantages that accrue to them by taking out policies and not having to pay Income Tax. I am not finding fault 607 with the companies for doing that. Every-body knows that a large number of insurances were affected in the past, both large and small, becasue it was thought that there was this saving of Income Tax. That principle is involved whether a man pays Super-tax or does not. However, in war time, and when a great deal of money is wanted, we cannot be very logical, and I have no doubt as time goes on the man who pays Super-tax and who has very few friends in the House or in the country, will be more and more bled, whether logically or illogically. He will get no logic. He has the advantage of having an income over the limit prescribed by the Government, and he must bear his sorrows with a knowledge that he is a Super tax payer. Therefore, so far as I am concerned, I am not prepared to offer further opposition to the proposal of the right hon. Gentleman, and I would only like to say that I really do hope in the future, when grave alterations in the law affecting so many thou-sands of people who are trying to be thrifty are made, a little more notice of it may be given to the public than has been given in this case. There is plenty of time for considering these matters, and if this had not been observed by some of the very astute gentlemen who watch finance in this House, of which I know nothing either in the House or out, it probably would not have been seen at all. However, I do not want to accept ungraciously what has been given by the Chancellor of the Exchequer, and I think the best way I can assist him is by saying I shall offer no further opposition.
§ Sir T. WHITTAKER
I think we shall all agree with the right hon. Gentleman opposite that it is unfortunate this has to be discussed under such pressure. I do not think the Chancellor of the Exchequer was responsible for that. I am one of those who believe that the proposal originally made is a sound and right one, but personally, and especially in view of the way in which the Chancellor of the Exchequer's suggestion has been met, I am not going to press any further in that direction. I will just make an attempt to suggest a logical reason for something in the direction of the position the Chancellor of the Exchequer has taken up. I do not know whether right hon. and and hon. Members have noticed this: Life offices pay about 4s. in the £ Income Tax. Five shillings is 608 levied upon them, but they get an allowance for their expenses, which practically brings their tax to about 4s. in the £. Now if a policy holder who has a large income, and whose tax is 8s. 6d., invests his money in a life insurance office, he is investing it where it will be only charged 4s. Income Tax; whereas, if he invests it anywhere else, he will be charged 8s. 6d. Therefore, he is saving 4s. 6d. in the £ on the income derived from his accumulated premiums. On the top of that, and in addition, he has been getting 8s. 6d. off the premiums. It really was an enormous difference, and, therefore, I think it does, form some logical ground for omitting Super-tax from this arrangement. There-is just one point which arises out of this arrangement which the Chancellor of the Exchequer has suggested, and I am not quite sure whether he will safeguard that now. New policies, as I understand, are to be allowed 3s. in the £, and old ones are to be allowed up to 5s.
§ Mr. McKENNA
They will be allowed, whatever the Income Tax may be. It may be 10s. in the £. We leave the law un-touched as regards existing policies.
§ Sir T. WHITTAKER
That goes a little further than I thought. It is rather a wide concession. As to the point whether the Chancellor of the Exchequer should not take some steps to safeguard it, it is possible for an old policy to be very much enlarged, and it is not a new contract. The new policy is to be limited to a tax not exceeding 3s.; the old one is to have the benefit of any tax that is going. Now there are policies issued by offices which contain an option to increase the amount of the policy. It is quite possible to confer that option on all old policies, and, if you do not mind, there is a loophole there through which all policies will be in-creased, and, unless the wording is going to cover those increases, you will, by having two rates of taxes, one for old policies and one for new, leave a door which, I think, ingenious people will get through. I want therefore to suggest to the Chancellor of the Exchequer, as a point to bear in mind, the barring of in-creases in existing contracts. It is a very doubtful point.
§ Mr. LOUGH
I want to offer just a word of warning to the Chancellor of the Exchequer against the suspicious counsel that 609 he sometimes receives from behind him. I think the House generally will agree that he has met the difficulty in which he was placed in a fair and handsome way, and he has made a broad compromise which I think ought to be generally accepted. When the right hon. Gentleman introduced the original Clause in the Bill he explained that he was not going to touch the general law with regard to insurance. It was not planned in his original Finance Bill. It was a new Clause which he brought in, and he said he brought it in to deal with a new evil. I think the advice he has received from the right hon. Member for Spen Valley was that, even if the new Clause has the merit which my right hon. Friend thinks, this was a good time to bring it in. I do not think it was. It was not at all a fair time to make a broad and sweeping change like this, and that was the point which struck the House so particularly in resisting the Chancellor of the Exchequer's proposal. That was the only point in the argument which I did not think the Chancellor of the Exchequer met very well. We understood we were dealing with new policies, and the House was entirely willing to assist the Chancellor of—the Exchequer in doing that. I will only add that it strikes me we have got a very fair compromise.
§ Sir FRANCIS LOWE
With regard to the Super-tax and the Income Tax, the same rule has applied hitherto to both and the same deduction has been allowed. I do not think any man objects to paying Super-tax if he has really got an income which exceeds £3,000, but if you are to knock off all these deductions a man may have not nearly £3,000 and yet may be assessed for Super-tax. There are many other anomalies surrounding the assessment of Super-tax. If a man owns house-hold property he is only able to deduct one-sixth of the rent for repairs, although the repairs may cost him very much more. In that way he already has to pay Super-tax, although his income really is not £3,000. Here you are adding further in-justice by refusing in future to allow him to deduct his insurance premiums which hitherto he has always been allowed to do. I cannot see why the Chancellor of the Exchequer should differentiate in this way between the assessment for Income Tax and Super-tax, and I think while he is making the concession he ought to go 610 the whole length which the case requires, and I do not think if he did so it would make very much difference to his revenue.
§ Mr. J. SAMUEL
As one who opposed the Clause when it was first introduced in the Finance Bill, I have to thank the Chancellor of the Exchequer for the concession he has made to-day. I think he has met us fairly in not touching the exist-policies. That is a concession which will be very gratefully received throughout the country. I agree with what the right hon. Gentleman the Member for Islington (Mr. Lough) said on this point. When this matter was brought before the House by the Chancellor the one object in view was to meet the case of a large number of men who were taking out not the ordinary life and endowment policies, but deferred annuities in large sums, and they were getting a very large abatement of Income Tax and thereby were able to effect a larger insurance. If the Chancellor of the Exchequer wanted to touch these excessive insurance policies, I have always felt myself that it is a very serious grievance that he should by this means touch and affect existing policies. Now he says that he is not going to do it, and on that ground we all agree that he has met the Committee fairly. I should like to make one remark with regard to what the right hon. Gentleman the Member for Spen Valley (Sir T. Whittaker) stated about options. There are two kinds of options with regard to insurance policies. There is the option given to a man upon the maturing of a policy at the end of a period-say of ten, fifteen, twenty, or thirty years. He then has the power in his contract to take the option of not obtaining the cash value of the policy, but of increasing the policy without paying any further premiums, and in that case there will be no Income Tax charged. My hon. Friend says that there are a very large number of policies where there is the option to increase the amount of the policy, and in that case he thinks the proper thing would be to bring it within the new policies issued up to the passing of this Bill. With that I agree, because all new policies ought to come within the terms of this Bill, and in future they will be subject to the Clause which the Chancellor of the Exchequer is now going to ask the House to adopt.
With regard to insurance companies, so far as my knowledge is concerned, and I have had some active experience with 611 them, at the present time there are no other companies in this country who are suffering like them. For instance, take industrial offices. Up to the present time they have paid £1,700,000 upon claims "which have been brought by those killed in the War without any legal obligation to pay those claims. I have never heard it suggested by the Government that we should pay and honour those policies, but we have done so because we thought it "was our duty, and we are suffering in-tensely from the fact that we are up to the present time paying up for every claims that comes in upon the lives of these men who are killed; and not only this, but we are losing the premiums at the same time. The insurance companies are not in any way affected by this particular arrangement, and I have argued right from the beginning that the matter affects, not the insurance companies, but the individual policy holder who pays the premiums. He is the man that will get this rebate. I disagree with the Chancellor of the Exchequer and the right hon. Gentleman the Member for Spen Valley that we should act upon the general principle in existence since 1853 as to whether it is right or not to give this remission, and if that question is going to be de-bated it certainly should not be upon an Amendment like this, but it should be taken at the end of the Clause, when the whole question of the incidence of the Income Tax could be reviewed. But it would be a mistake to discuss that question now. I think the Chancellor of the Exchequer has met us, and I think we are all prepared to support him most heartily.
§ Mr. STUART-WORTLEY
It is only in the most narrow and technical sense that it was argued yesterday by the right hon. Gentleman the Member for Spen Valley and the Chancellor of the Exchequer that there was no contract made in 1853 with. those who took out policies of insurance. Of course, what did result from what was done in 1853 was that a number of persons then and since then have placed them-selves in a position from which they can-not recede without disaster or loss to themselves. If you make the modifications which the right hon. Gentleman is pro-posing to make they will be in exactly the same position, and will suffer from the same kind of mischief as people do whose rights are taken from them under a con-tract which they had a right to think would be left sacred and inviolate. There 612 was another, I will not say fallacy, but an argument of a superficial character which was put forward yesterday by the right hon. Gentleman the Member for Spen Valley. He said that in 1853 Mr. Glad-stone gave these concessions as regards Income Tax, not to promote thrift, but for the purpose of providing somehow for the general desire that there should be a distinction between earned and unearned income. The right hon. Gentleman is partly right and partly very far from right. We all know that Mr. Gladstone had an un-conquerable aversion to facing the problem of distinguishing between earned and unearned income.
Some of us can remember the late Mr. Hubbard, who yearly brought forward his hardy annual about distinguishing between earned and unearned income, and some of us remember the persistent way in which Mr. Gladstone refused to accede to Mr. Hubbard's contention. Those of us who remember those things are well aware that it was really the fear of the administrative difficulty that prevented Mr. Gladstone from drawing that most just and necessary distinction. The earned income is, by its very nature, an income not permanent in its character, and can last no longer than the life of the person receiving it, against the termination of which you make provision by life assurance, as you do by other forms of saving. Therefore, it is in the highest degree necessary that in respect of these con-tracts which have to run for long periods in the distant future the very highest standard of public confidence should be kept up. When a man is going to enter into an insurance contract lasting, perhaps, a quarter of a century, there should be no suspicion that the relations between him and the company are likely to be disturbed before the time expires. I am glad the right hon. Gentleman has looked at this matter from that point of view and paid this regard to the opposition with which he was threatened. It is not logical to exempt Super-tax entirely from the arrangement, because there again you are faced with the distinction between earned and unearned income. An income of a thousand a year may come to an end with the life of the recipient, and this may be a proper case for insurance, and it deserves the same public encouragement towards provision for its termination. We must not, however, look at concessions 613 too closely. I am glad the right hon. Gentleman has recognised the justice of the claim put forward yesterday as regards the old policies, for I do believe he has warded something off which would have very seriously deteriorated the credit of the British Exchequer.
§ Mr. BRYCE
I do not wish to minimise the concessions which have been made by the Chancellor of the Exchequer, but I think it is well that the House should realise that the right hon. Gentleman is only making concessions on the terms of the Amendment put down yesterday, and not as regards the propositions of the original Bill. It is only under this new Clause that we get future life policies roped in and exempted from the operation of the Act of 1853, and that is really not a concession at all. As a matter of fact we are going back and imposing further restrictions, and in view of the harmonious tone prevailing, I am afraid the House has not really understood that the Chancellor of the Exchequer, although he is making concessions in one direction, is taking away what he proposed in the original Bill. I am not quite clear whether the original provisions of Clause 33 in the Finance Bill were directed against these endowment policies for a short term of years. I gather that those are no longer in any circumstances to get exemption. Is that so. Formerly Clause 33 of the Bill said:
"Relief shall not be given except in respect of premiums or payments for (ii.) an insurance limited to the payment of a capital sum on death, and the payment of a sum on reaching a certain age, so long as—(a) that age is not less than sixty years; and (b) there is an interval of at least twenty years,"
and so on. Those were endowment policies.
§ Mr. McKENNA
A particular kind of endowment policy is covered by paragraph (a)—
"Except in respect of premiums or other payments payable on policies for securing a capital sum on death, whether in conjunction with any other benefit or not."
§ " The said relief shall not
- (a) be given except in respect of pre-miums or other payments payable on policies for securing a capital sum on death, whether in conjunction with any other benefit or not; or
- (b) be given in respect of premiums or payments payable during the period of deferment in respect of a policy of deferred insurance."
§ Mr. BRYCE
I do not quite follow. The thing would really very largely depend upon what you meant by the words "in conjunction with any other benefit or not." This was really a particular method of get-ting in under the old law. Do I under-stand that the insurance companies have now agreed with the Chancellor of the Exchequer that those particular evasions are to be prevented?
§ Mr. McKENNA
I understand that under the Clause as it now stands it will not pay to adopt these particular evasions. There is no financial advantage either to the in-surer or to the company under the Clause as it now stands.
§ Mr. BRYCE
I am very glad to hear the Chancellor of the Exchequer say so. It seems to be all right, but I think it is a mistake and in contravention of the policy by which these allowances were originally made, no matter what the rate is. That was a policy of encouraging thrift, and surely when there are all these War Savings Committees and War Expenditure Committees and everything for the purpose of encouraging saving-you are having posters 100 feet long-it is a mistake to do away with one of the greatest inducements to saving by limiting in any way the deduction for Income Tax from insurance premiums. I do not want to minimise the concession made by the Chancellor of the Exchequer, but I would point out that he is illogical, and he is committing a breach of the policy the country has so far pursued in encouraging thrift.
§ Sir G. TOULMIN
The hon. Gentleman who has just sat down has been engaged in the pleasant task of looking a gift-horse in the mouth, but whether he thinks this is a concession or not, I can assure him that a good many Members of the House think that the Chancellor of the Exchequer has made a very large con-cession, not merely to the people to whom these placards appeal, to' people with small incomes, but also to people who have very large incomes. Probably the House, owing to the financial emergency revealed by the Chancellor of the Exchequer, has not time really to thrash this question out. I am glad that the Chancellor of the Exchequer did not insist on the Motion which he had down to-day, because even rich people ought to have the protection of the Rules of this House when he proposes to put new taxation upon them. The Chancellor of the Exchequer has been congratulated on the handsome way in which he has met the opposition. I am afraid I might be using an un parliamentary expression if I said that he was "blackmailed," and I do not wish to insist on that word, but I do think, if he had had a little more time, that he would have been able to carry through the House his present proposal unaltered. At present he has found it wise to give way to the opposition which has been drummed 616 up. I believe if he had left this to the decision of the House of Commons he could have carried the proposal which he himself made. This resistance to the limit of the amount of encouragement of the thrift of the rich is really a method of avoiding war taxation. There is one particular method of saving by those who are so certain of their income that they can undertake year by year to make large payments. There are others who are less well off and cannot undertake year by year to make these large payments and save through insurance companies. They must submit themselves to the ordinary fluctuations of the Income Tax. The time has really arrived when this question ought to be reconsidered. It did not matter very much when the Income Tax was Is., but now that a very large amount of war taxation is being imposed it is against public policy that certain persons should not be called upon to pay the tax. The scheme of the Chancellor of the Exchequer was just, and it secured as great a contribution to the savings of insurers as ever they expected. I can see no reason why the added taxation should not be paid by these rich insurers. The right hon. Gentleman opposite (Mr. Stuart-Wortley) introduced the sacred word "contract," and said that they have a contract with the insurance company. There are other people who have contracts. There are people who have contracts with building societies, and in regard to matters of that kind. They are not protected in this way. They have to pay whatever increased taxation is imposed.
§ Sir G. TOULMIN
If we are encouraging thrift, why should we not encourage the thrift of a man who saves his money through a building society as well as the thrift of a man who saves through an insurance society 1?If an insurer dies his relatives get £1,000 or £10,000, but in the case of the building society the debt still goes on and has to be paid even if the man does die. There is a certain advantage to a man who saves through an insurance society which the man who saves through the building society does not get. I am not quite sure that the Chancellor of the Exchequer has not made too large a con-cession. I do not suppose that he wished to forewarn us of a probable Income Tax of 10s. in the £. I dare say that he would 617 come down to the House with a little Bit of trepidation if he had to propose a tax of 10s. in the £, but still, if this Clause means, in the event of the Income Tax going up to 10s. in the £, that the man who has commitments which do not permit him to insure will have to pay that 10s., whilst the man who is so secure of his income that he can undertake to pay these great sums to the insurance society gets relief, well, then I think he will have to re-consider the matter. After all, this is only a question which affects about 30,000 rich people. It is not, as my hon. Friend the Member for Stockton (Mr. J. Samuel) suggested, something which will be accepted with thanks over the breadth of the Kingdom.
§ Sir G TOULMIN
I understood that the figure was much larger than that. I under-stood that it was up to £2,999 19s. 10d.—that is to say, just under £3,000—or some-thing of that kind. I am told that the number of persons affected is 30,000 or thereabouts. Those are the people to whom the Chancellor of the Exchequer has made this concession.
§ Mr. CURRIE
I was one of those who contributed to getting the Chancellor of the Exchequer into this hole, and it is only fair I should say that I think he has redeemed the undertaking he gave, perhaps a little too hastily, in the course of one of the earlier debates and that he has fairly implemented what he said. There is a difference in the alleged retrospective effect of the first Clause, had it been made retrospective, and that of the Clause as it now stands. I always agreed that the fact that the tax is now used as a war tax takes away the right of policy holders to say that they had a contract of immunity. I take exception to the word which fell, perhaps inadvertently, from my hon. Friend opposite (Sir G. Toulmin) and to his argument that the opposition to this Clause had been drummed up and that unfair pressure had been brought to bear on the Chancellor of the Exchequer. I do not think the Chancellor of the Exchequer would endorse that suggestion for a moment. Two points which have arisen might conveniently be cleared up at this stage. The first is the exact position in which the right hon. Gentle-man leaves certain classes of endowments. I understand that he cuts out the pure 618 endowment—that is, the endowment certain—not resting upon the contingency of life, and that he protects within prescribed limits what is popularly known as the life endowment. The other question was raised by the right hon. Gentleman the Member for Spen Valley (Sir T. Whit-taker). It refers to certain options, which as he very rightly said exist in certain classes of policies. The case he put was this: Under an old policy the holder had a right to convert its terms and he might enlarge its amount. I think the position of the Chancellor of the Exchequer is this: If a policy holder had that right it was really part of the old contract, and I took his statement to mean that he would not lay hands on that right and that it would enjoy the same immunity. If that be so, the particular difficulty raised by my right hon. Friend does not exist. I am interested in the point because the first day we discussed this matter I pointed out that these options existed, and, if I under-stand the Chancellor of the Exchequer rightly, he has dealt with the matter satisfactorily.
§ 7.0 P.M.
§ Sir T. WHITTAKER
My fear was that that option might be given to existing policy holders where it is not in a policy now.
§ Sir H. CRAIK
We have heard a good deal during this Debate of blackmail and of gift horses which have been looked in the mouth. I think there is a little too much of the tone running through the whole Debate that this question of taxation is to be settled by concessions which will be favourably received by this person or that person, or by this class or that class. I am old-fashioned enough to think that wo who decide taxation here should be guided by broad principles of justice, and not by the interests of one class or an-other. What are the real principles involved in this matter? I perfectly agree with the right hen. Gentleman in making a distinction with regard to these endowment policies. Endowment policies are more or less of the nature of investments, and I think that, like any other investment, they should be subject to taxation and to fluctuation of taxation. When, however, you come to deal with the other as a broad general principle "which yon must keep in view, you must do what you 619 can to promote thrift. That is perhaps an old-fashioned thing, a great deal of which has been set aside of recent years, but it is none the less a virtue, and a virtue that works good for the country. To do anything that can encourage insurance, and to cause people to make pro-vision for those for whom they are responsible, is' a matter you ought to keep in view. The right hon. Gentleman is not altogether keeping that in view, because he says that in all life insurances hereafter you will exempt them from the benefit that has hitherto been given.
§ Sir H. CRAIK
That above 3s. he will give them no longer the benefit that has been given since 1853. I am afraid I must interpret that benefit as an exemption from taxation. I differ entirely from my hon. Friend the Member for Leith (Mr. Currie) in saying that an increase of the Income Tax is therefore a sound reason for breaking this contract. If you carry that to a logical conclusion it would mean that any increase of the Income Tax after a particular date was to be a reason for putting it upon insurance. I am sorry that the right hon. Gentleman has thought it necessary to put this tax even to that extent on new insurances which are to be insurances for death, the only way in which married men of the professional class can make provision for those who are to come after, and which I distinguish from anything in the nature of investments, such as endowment policies. I have another objection to the right hon. Gentleman's policy. There are few here who can rise and object to Super-tax, because I dare say a great many are hit by it, and that looking at it in a broad sense they do not wish to interfere in their own interest. I am in the position of not paying any Super-tax, and of never having the smallest expectation of ever paying it now or hereafter. I have always, as I said on a previous occasion, objected to Super-tax on broad grounds of justice, and I do not think I am altogether without support in opposition to it if we look to our great financiers of the past. There was no one more opposed to it, and he opposed it during his whole life, than the financier whom the party opposite like to quote as their chief protagonist, William Gladstone. He never accepted it, and he never did anyhing but speak against it. He thought it an unsound principle, and in a humble way I follow his teaching. I beg 620 the Committee to note that the action of the Super-tax imposed by the right hon Gentleman has been to create a new, and I think a very dangerous, position. Super-tax, if it means anything, means the in-crease of a tax that applies to the whole of the community. Now you are establishing a Super-tax which does not rest on a basis of anything paid by those on a lower scale of income. You are now establishing a Super-tax which will be independent of ail payments by the rest of the community, and which will be paid solely by a certain class of the community. If we are to judge on justice, fair play, and logic, and after all we can do nothing but that, is it justice to adduce an argument such as that adduced by the hon. Member who spoke from the other side a short time ago that these are only 30,000 people. Does the principle of justice not prevail as much with regard to those 30,000 people because they are only 30,000 as if they were 3,000,000? If you are going to be guided in your justice of taxation by the number whom the particular Clause' will tax, what will be the result? It will be that all minorities will be taxed, and that the great mass of the community will be free. That may be a popular thing, but it is not logic, and it is not justice; and, speaking for that very large number of men who like myself are professional men of small income and not affected by the Super-tax at all, I wish to raise my pro-test against what I conceive to be an unjust and dangerous extension of the principle of Super-tax, that is, making it a tax which does not in any degree rest on all classes of the community at all, but which touches only a small class which cannot, from their numbers, defend themselves.
§ Mr. HUME—WILLIAMS
I want to say a word on behalf of the insurance companies, because I think it has been said on two or three occasions in these Debates that some bargain has been made between the Chancellor of the Exchequer and the representatives of the insurance companies. I do not think that is an accurate way of stating it at all. I think I am perfectly correct in saying that so far as endowment policies go, and the evil that is caused in that respect, all the insurance companies were at one, and all agreed that the exemption from the payment of Income Tax ought to be stopped. They gave their loyal co-operation to the Chancellor of the Exchequer in framing a 621 scheme to stop it, but beyond that, when it comes to a question of pure life insurance, it is an Income Tax question solely. It really does not concern the insurance companies, and if they have given any help to the Chancellor of the Exchequer it has been as experts in aiding him in finding a just way in which the Income Tax can be paid. I confess myself that I rather regret that in Clause1 (a) and (b) of the new Clause, the Chancellor did not see his way to leave existing policies of pure life insurance as they were. I think, perhaps, that if the limitations of exceptions to relief which are contained in Clause 2, the effect of which is that endowment insurances entered into before the 22nd June, 1916, remain as they were, had appeared with reference to the first Clause, and had been taken out of the second, there might have been a little more sense in it. I should have been inclined myself to say that, so far as pure life insurance goes, which is the investment in respect of thrift of the working classes, it should have been left alone, except in respect of new insurances taken out after the date in question.
§ Mr. HUME-WILLIAMS
I apologise to the Chancellor of the Exchequer for taking up a point which has already been decided. As to the second Clause, I think it is sound and good, and it will certainly have my support.
§ Clause read a second time, and added to the Bill.
§ Mr. McKENNA
I beg to move, in Sub section (1), after the word "not" ["sub-sequent enactment, shall not"], to insert the words "as regards insurances or con-tracts for deferred annuities made after the twenty-second day of June, 1916."
§ Amendment agreed to.
§ Mr. McKENNA
I beg to move, to leave out the word "or" ["three shillings in the pound; or"], and to insert thereof the words "and shall not as regards any insurance or contract for a deferred annuity," and then to leave out the paragraph letter ("b").
§ The CHAIRMAN
I will make it quite clear to the Committee. I was a little 622 puzzled myself. We leave out the two letters of the paragraphs, and make it read continuously. Then it reads correct. I will now put the Question: To leave out the words " or (b)," and to insert instead thereof the words " and shall not as regards any insurance or contract for a deferred annuity."
§ Mr. RAWLINSON
I hope that, as the Report stage is on Monday, the right hon. Gentleman will have this redrafted. It is very difficult to understand. The simplest way would be to take (" a ") out of Clause1 and put it into Clause 2.
§ Mr. McKENNA
I think it will read all right when the hon. Gentleman sees it in print to-morrow. I have it written out myself.
§ Mr. McKENNA
Yes. It reads, "as regards insurances or contracts for deferred annuities made after the twenty-second day of June, 1916," etc.
§ Amendment agreed to.
§ Mr. RAWLINSON
No, my Amendment is to add at the end of the Clause the words "or on any policy taken out by a teacher in a secondary school." I beg to move that. The meaning of it is this: that there was a committee set up before the War on which I had to work-not a Committee of the House-and the Government appointed a Committee of this House who were very anxious to encourage, and if it had not been for the War would have subsidised, a scheme for teachers in secondary schools to purchase annuities at age fifty-five and sixty, so that they might be able to retire when they felt too old to work. That scheme was never set up, and there is, therefore, no exemption provided for in this Clause. There is a scheme for elementary school teachers, and that is in the Clause, but there is nothing as regards secondary school teachers. In the course of the committee meetings, and the conversations we had with the Chancellor of the Exchequer, and the Committee of the House of Commons, that recommendation was strongly made, and everybody was urged so far 13 was reasonable to buy these annuities for themselves, and they did so very largely, 623 more especially the female teachers. A large number of these policies have been taken out. I have letters from different associations of assistant secondary school teachers and head-mistresses of secondary schools saying that they have taken out such policies which give them annuities at the age of fifty-five.
§ Mr. RAWLINSON
I am sure it does. This is a very difficult Clause to under-stand, and I do not believe that half of the hon. Members of the House under-stood what they formally read a second time. I have taken the trouble to read it. Undoubtedly these people are hit by this Clause, and it will be a serious matter for them if they are. They are annuitants. They do not insure against death because they cannot afford it. They insure so that at the time a retiring pension would be due to them they get an annuity. It was recommended that they should do it, and they have done it. I believe that, in addition, they have a certain right of commutation if they marry, but there are not very many policies to which that would apply. In the original New Clause put down by the Chancellor of the Exchequer on the Committee stage I had no difficulty in drawing an Amendment for this purpose, but on this New Clause I have had great difficulty in doing so. I believe the Amendment is in rather a crude form, but it will carry out what I am sure is the intention of the Chancellor of the Exchequer and the House, namely, to exempt these policies. No teacher in a secondary school would be likely to gamble in policies on a certain basis. Their finances are sufficiently small to safeguard the Exchequer against that, which would be the only danger the Chancellor of the Exchequer would run in accepting my Amendment exactly as it stands. There is no necessity for the Amendment so far as elementary school teachers are concerned, because they have a scheme, and they are exempted; and there is no necessity for it in the case of certain bigger schools, where there is also a scheme. I am dealing with the large masses of people who are not under any scheme, but who would have been 624 under a scheme had it not been for the War, who were not in the habit of insuring themselves, but who were advised by many people un-officially that they should carry out a scheme for themselves. Those cases are even more numerous than I thought them to be some time ago. I strongly urge the Chancellor of the Exchequer to accept the Amendment.
§ Mr. McKENNA
I recognise the case my hon. and learned Friend has put. I thought my words covered it, but I was not aware that the scheme proposed as long ago as 1908, when I was at the Board of Education, had not matured yet. I recognise that something has got to be done to meet future contracts of this kind. Of course existing contracts are already saved. Existing contracts of insurance already made will get the benefit in future of the deduction. This Clause applies only to future contracts. I understand that my hon. and learned Friend, in anticipation of the scheme, wants secondary teachers still to have facilities to insure?
§ Mr. McKENNA
He may take this assurance from me, that I will inform him by Monday of what we can do in the matter. I am not sure that his particular words are those we should like to put in, but I will deal with the point, and, if I find no other form, I will accept his words on the Paper. I hope he will leave me liberty in the matter until Monday.
§ Amendment, by leave, withdrawn.
§ The following Amendment stood upon the Paper in the name of Mr. BRYCE: At the end of Sub-section (2) add the words, "Provided also, that a premium paid in connection with a life assurance policy to secure a licence to engage in the Naval or Air Services of the Crown or to engage in the Military Service of the Crown outside of the United Kingdom shall not be subject to the restrictions imposed by this Section of the Act and by Section seven-teen of the Finance Act, 1915."
§ Clause, as amended on re-committal, added to the Bill.