NEW CLAUSE.—(Amendment of 8 and 9 Geo. V., c. 40, 8. 15.) (Hansard, 23 July 1919)

§ Mr. STEWART
I beg to move, That the Clause be read a second time. This is merely a verbal and drafting Amendment. It will cost the Chancellor 1451 of the Exchequer nothing, and I hope he will be able to gave favourable consideration to it. My objection to the term "unearned" in our Finance Act is that it is an incorrect definition. There is no such thing as unearned money. There may be different opinions as to how it is derived, but it is always earned by somebody. You rightly treat pensions as deferred pay, and I say that the man who has to make his own pension requires similar consideration, and you should not subject him to the undeserved taunt of saying that he is living on unearned money in his old age. People advanced in life who are dependent upon the money they have saved find themselves in many difficulties to-day, because prices are high, their incomes are much reduced, and they are taxed at the highest possible rate. On the top of this it is very hard to reproach them by saying that they are living on unearned money. I remember hearing Mr. Asquith make a very strong speech in this House about sloppiness of definition. With all respect, I say that the word "unearned" money in the Finance Bill comes under that term of sloppy definition. I have had a letter from an old man who is nearly eighty years of age. He was a music teacher up to recently, and after fifty years of work he retired, but has has had to go back to work owing to high charges and the 6s. Income Tax. He protests against the fact that he and his wife on their little competence are said to be spending the remaining years of their life living on unearned money.
There are many widows in this country, with children of fathers who have given their life for their country, who have a hard struggle to educate their children. When they have a small income from investment it is altogether wrong to say that these children are being educated on unearned money, after their father has given his life for his country. People talk about money being earned by their own unaided effort. No one does that. The production of money is a matter of combined effort. It is said that a man who tills the soil cannot do it unless he is provided with a spade or a plough from a brother workman. We could not have our ships sailing the sea or our workshops filled with machinery if there were not people who had saved money and had put down capital with which to run these institutions. Those people who spend their money as it comes are very often gallant 1452 and lovable people, and the world would be much poorer without them, but as times are to-day they are not much use to the Chancellor of the Exchequer, who has to finance the country after a great war. The best people for him are those who have saved money and who have money to lend him, or whose credit is so good that they can go to their bankers and get money to their credit in order to lend it to the Chancellor. They, therefore, put at his disposal both their money and their credit. The term "unearned money" lends itself to much misrepresentation, and the unscrupulous agitator can misrepresent it in the most dangerous way. He can go about saying that there are lots of people in this country who have plenty of unearned money, that there is a bottomless pit of unearned money belonging practically to nobody in particular, and that those who have been self-denying and laborious are merely a multitude of loafers and parasites. The Victory Loan has been a success of a sort, but what would it have been if we had not had people who have earned their money and saved it and lent it to the Chancellor of the Exchequer? They have rendered unto Caesar the thing for which Caesar asked them, and I appeal to the Chancellor of the Exchequer in the name of Caessar that he should remove the stigma which the word "unearned" unjustly casts upon people in this country.

§ Mr. G. TERRELL
I beg to second the Motion.

Mr. CHAMBERLAIN
I have a great deal of sympathy with the motives of my hon. Friend. We all agree that the distinction between earned and unearned income is not a very happy one, and that it does not correctly describe the position I admit that it does give rise or lends itself to misapprehension. It is not, however, very easy to find language which will accurately describe the distinction between the two. The Select Committee of 1906 which dealt with the question reported on these lines: Before your Committee considered the practicability of differentiating between permanent and precarious incomes, they felt it desirable to define clearly the meaning of the terms 'permanent' and 'precarious.' Other terms which have been used are 'industrial' and 'spontaneous,' 'earned' and 'unearned,' and incomes resulting from 'investment' and 'personal effort.' It is obvious that there are incomes from investments which are not 'permanent.' There are also incomes which are 'earned' by 'personal effort' which are less 'precarious' than many which are derived from 1453 investments. Probably the words 'earned' and 'unearned' most accurately represent the distinction we have in our minds. Accordingly, the words "earned" and "unearned" were adopted. There is no definition in the Act of "unearned." Unearned is the natural counterpart to earned. "Income from saved money" instead of the term "unearned" would mean a much more elaborate Clause to define it than that which the hon. Member has drafted. Possibly we may have a suggestion from the Royal Commission on this point, and I hope the hon. Member will be content to wait and see whether they can find any happier language to properly define the distinction. I hope, therefore, he will not press his Amendment.

§ Mr. MARRIOTT
The hon. Member who proposed this Clause described it as a verbal alteration, but it seems to me it is one of very great substance indeed, and I hope very much that he will continue to press it on the attention of the Chancellor of the Exchequer and also on the attention of the Income Tax Commissioners. This is a matter of grave importance. The point as it presents itself to me is, however, exceedingly simple, and I would venture to put it to the right hon. Gentleman in this way—does he or does he not wish to encourage the people of this country to save their incomes? If he wants to encourage them to spend their incomes up to the hilt, then he had better persist in the course of differentiating between earned and unearned incomes and imposing a higher tax upon the latter, but if, as I understand, one of the great objects of his policy is to induce people to refrain from spending their incomes and to invest a portion of those incomes in Victory Bonds, then I suggest he should listen to "he arguments put forward by my hon. Friend opposite and take some steps in the direction of reversing the policy introduced in the year 1907 by, I believe, Mr. Asquith. I am quite sure he will never induce the people of this country to be really thrifty, and to abstain from spending the incomes they earn, so long as he maintains this mischievous distinction.

§ Major MOLSON
I should like heartily to support my hon. Friend in the proposition he has moved. I agree it is more than a simple play on words. Let me take one case as an illustration. You 1454 have an industrious man who started with practically no capital at all, but during the course of his lifetime he has accumulated a capital, every penny of which he has earned. He has accumulated it in order to provide for himself in, old age and for his family. Why should that man be stigmatised as having an income derived from unearned capital when, as a matter of fact, he has earned every penny of it in preceding years. I submit that the income from that ought not to be taxed at a higher rate than the income earned during the present year.

§ Captain WEDGWOOD BENN
If I understand the Amendment aright, it urges that there should be no distinction made between money earned by present work and money which is derived from accumulated savings of the person taxed or from the accumulated savings of others, and that being so, I think someone should rise and point out that one of the principles of taxation in this country is, and has always been, that money derived—

§ Mr. MARRIOTT
This special differentiation only dates from 1907.

§ Captain BENN
But the hon. Gentleman who interrupts me challenges the whole principle, although the hon. Member behind me talks of the proposal merely as a verbal alteration. I think somebody should point out that it is proper there should be a higher rate of tax charged on money accumulated and money inherited.

§ Mr. SPEAKER
This Amendment only relates to the cases where the words "unearned income" are used in Section 15 of the Income Tax Act of last year. It is really therefore only a verbal Amendment.

§ Captain BENN
But does not the Amendment go on to say "and in any other Section or Schedule of any Act"?

Mr. CHAMBERLAIN
I submit it was intended by the Mover only to be a verbal alteration. It is quite true that the hon. Member opposite did raise the question whether there ought to be any distinction at all, but all this seems to do, while keeping up the distinction, is to describe it under a different name.

§ Sir F. BANBURY
The Amendment is no doubt intended to make a verbal alteration, and I will not go into the other 1455 question whether or not earned and unearned incomes should be treated differently, except to say that I agree with the hon. Gentleman opposite that a man who has saved money, instead of being penalised, should really be rewarded for so doing. But that is not the Amendment before the House. I do think that some alteration ought to be made in the differentiation of these particular incomes. I am not quite sure that the word "savings" is a very happy one, because as my hon. and gallant Friend opposite said, the words as they stannd do include incomes which may have been derived by inheritance or from some other source. But where a man has denied himself in his youth of certain pleasures to which young men are usually addicted, and where he has done so in order to provide for his old age or for his children, it is hard that he should be taxed more than the spendthrift, and that in addition he should be taxed as if it were unearned income. Possibly my right hon. Friend may not be able to accept the Amendment now, but would it not be possible in another place to make the desired alteration? Surely he and his advisors ought to be sufficiently clever to find words which would express their meaning without stigmatising a man who has done his duty to the State by saying he shall be taxed on unearned income.

§ Mr. STEWART
I hope the sympathy expressed by the right hon. Gentleman was sincere, and that he will induce those who may have the responsibility for the wording of future Finance Bills to try and devise less offensive words than those. Under the circumstances I beg to ask leave to withdraw my proposal.