NEW CLAUSE.—(Amendment of s. 36 of Finance Act, 1916.) (Hansard, 23 July 1919)

§ Sir H. NIELD
I beg to move, That the Clause be read a second time. In bringing this matter again to the notice of the Chancellor of the Exchequer I hope I shall find him a little more sympathetic than he showed himself to be in Committee. I want to make it perfectly clear that it is only desired to limit the sum to £100, and I want also to say that while I appreciate the courtesy of the right hon. Gentleman in showing me the memoranda which he has had prepared on this occasion to guide him on the various questions raised on the Finance Bill, I have since verified my information by a careful examination of the Debates which took place in 1916, both on the original Resolution, on the Committee stage, and on the Report stage I am quite sure there are many Members of this House who will appreciate the hardship of the present state of things. I may start by pointing out, with reference to the Super-tax, that from 1910, when that tax was first imposed, down to 1016 there was no attempt to differentiate between Income Tax and Super-tax. I want the House, if it will, to follow me while I briefly sketch the history of the subject. Ever since the passing of the Income Tax Act of 1853 there has been allowances made in respect of premiums on life insurance, and there has been no attempt to restrict these allowances until recent years, when it was found necessary to put a limit on the deductions to the extent of a sixth of a person's income. I do not think that anyone will complain of that. But in the year 1916, owing to the action of certain life offices, the then Chancellor of the Exchequer (Mr. McKenna) had his attention called to a number of devices whereby people avoided the payment of Income Tax, amounting then to 3s. in the £, and also avoided Super-tax, by an ingenious method of policies which these very adventurous companies offered. I find in the report of the speech made by Mr. McKenna in this House in 1916, that there was a return of 7½ percent. on these investments—no doubt a very attractive offer to the people effecting these policies in order that they might be able to deduct the amount of the premium from their annual Income Tax return.
Thereupon the Chancellor of the Exchequer introduced this Clause, which gave rise to a very considerable amout of alarm in life insurance circles amongst those companies which were in the habit of offering these inducements. I complain 1457 bitterly that the Chancellor of the Exchequer, in dealing with this in the 1916 Debate, referred to what was done as a kind of compromise which should be binding upon the House potentially for all times. What occurred was this. There was an interview with representatives of the life offices, who feared that their artful proceedings would no longer be possible if the proposals then foreshadowed found their way into the Finance Bill; they feared they would be deprived of an opportunity of continuing this very questionable business. There was a compromise between them and the Chancellor of the Exchequer, but it had no reference to public demand. What it did was to provide that in respect of policies of life insurance or deferred annuities effected after a definite date in June, 1916, they should not be allowed a greater deduction from Income Tax than 3s. in the £, and then by some means words were allowed to creep in that Super-tax only was excluded from the benefit of exemption. So that we have it by the Act of 1916 that a person can deduct up to a sixth of his income all the sums of money paid by way of premiums on policies effected before 22nd June, 1916. Subsequent to that date he can only deduct on new policies 3s. in the £, and in respect of Super-tax for the first time he was denied relief of any kind. That is a great hardship. In particular, in these days When the limit of Super-tax has been reduced by successive Budgets, it presses very hardly on a large body of persons whose incomes have now been brought within the limit of Super-tax. The Government is taxing a man on an income which he does not have at all, and in many respects is doing a very considerable injustice in the manner in which Super-tax is levied. I am not allowing him to insure someone else's life and ask for a reduction of premium, but I am asking that the thrifty person who is trying to make provision, if it is an endowment policy for his old age, but in the more common case in order that his family may benefit by the policy, should have relief from Super-tax to the extent of £100 during the current year for which the tax is being levied. The Chancellor of the Exchequer answered me in these terms: After hearing arguments by my predecessors, my hon. Friend now asks to have these decisions in part reversed. I am sorry that I cannot accept his proposal. The present arrangement is something in the nature of a compromise. Policies of insurance with a rising rate of In- 1458 come Tax and Super-tax were being used, not as an insurance against death or a contingency of that kind, but to insure against Income Tax and Super-tax. The actual position of the law now is something in the nature of a compromise. I venture to say one word more. I think my hon. Friend has chosen an unfortunate moment for asking for an extension of relief in respect of the provision made for Death. Duties. My proposal had no relation whatever to Death Duties. It was simply an ordinary current policy which formed part of a man's estate out of which the Death Duties would be payable as a whole, and. not as an insurance against Death Duties. My right hon. Friend went on— There is an unrivalled means of provision for Death Duties in the Victory Loan. Insurance companies have issued statements giving the conditions. I could not possibly consider a. further proposal in respect of such matters. It is a very great concession to those to whom such considerations would apply to allow Victory Bonds which are subscribed at £80 to be received for Death Duties at £100."—[OFFICIAL REPORT, 16th July. 1919, cols. 637–8.] A totally irrelevant speech. The point was not in issue at all. I ask the House on Report to consider the position of a man who, having had certain obligations and an expensive family to bring up, finds his income swept into the pool for Super-tax. He has been accustomed to spend up to his income in maintaining the standard of life which he has always held and to provide for the increasing burden of education and the putting out in life of his children. Suddenly, by reason of the necessities of the Chancellor of the Exchequer, the liability for Super-tax is put upon him by reducing the limit. Originally no one under £5,000 a year would be liable to Super-tax. That has gone. Such a man, brought suddenly into that position, having to meet his current expenses, and especially in these days-having to meet the enormous increase for maintenance, is only reasonable in asking that there should be, in respect of Super-tax, an allowance for moneys which are paid out on his own life for current insurance for the benefit of those who are to come after him, and upon which at his death the State takes its share in the shape of duties. I do not ask for any advantage for those who were speculating wildly, apparently, previous to the Bill of 1915, but I ask that thrifty persons, situated as the man I have described, shall be protected, and it is only reasonable, limiting it to £100 in respect of the current year upon his own policy on his own life, that 1459 it should be conceded and that there may be to that extent a continuation of the old rule that Super-tax follows Income Tax.

§ Mr. STEWART
I beg to second the Motion.
Considering the moderate way in which my hon. and learned Friend has put it, and seeing that Super-tax is now charged in cases where there are large families, and in view of the existing high prices, I think this is a concession which my right hon. Friend might gracefully give without loss.

§ Mr. BALDWIN (Joint Financial Secretary to the Treasury)
Even if I am not able to give the hon. and learned Gentleman what he requires, I will be as conciliatory as possible. I am very glad that we are on the Report stage, where second speeches are not allowed, so that it will not be within his competence to rise after I have finished and say my reply has been irrelevant I entirely agree with him that it is a hardship. All taxation, direct and indirect, is a hardship. I can have no complaint of his raising this question, because every taxpayer, from the wealthiest down to the poorest, when he sees the scale on which taxes are imposed to-day, naturally tries to secure some amelioration for himself and his friends. The hon. and learned Gentleman gave a very accurate account of the history of this subject, with one exception. He spoke about the Clause having reference to the exclusion of this privilege from the Super-tax in the 1916 Finance Act as having crept in. It did not creep in at all. It entered walking erect, with a flourish of trumpets. If the hon. and learned Gentleman had pursued his investigations so far he might possibly have discovered that the very suggestion which materialised in that tax came from the insurance companies themselves. The Clause which the Government put down did cause them confusion and terror, and they suggested that the 3s. limit which now exists should be put in for the rebate and that Super-tax should be excluded, and on those lines the final Clause was drawn up and submitted to Parliament and passed into law without revision. The hon. and learned Gentleman said Super-tax should follow Income Tax. I would rather look at it in this way: What we call Super-tax and what we call Income Tax combined are simply Income Tax, and Parliament has decided that for the purpose of Income Tax 3s. shall be the limit of the rebate which is allowed to the 1460 man who pays a premium on his life insurance. It may be contended that it is a hardship that you are not allowed more, but surely it would be equally true to say it is a privilege to be allowed to get anything back at all. There is no real reason why you should get anything back at all. except that the State in its wisdom—I think on the whole rightly—decided years ago that some encouragement should be given to thrift. There is encouragement now to the extent of 3s., an extent which some years ago would have been considered very satisfactory, but I am afraid my right hon. Friend is quite unable to recede from the position that he has taken up. I look on this matter as a case which has been settled by Parliament. It was settled in the Finance Act of 1916. Sporadic attempts have been made on the principle, notably last year, when an hon. Member who is no longer in the House moved a Clause or an Amendment on the subject which was negatived without a Division. I am sure what I have said has not been in the slightest degree satisfactory to the hon. and learned Gentleman, and I very much regret having been the vehicle of so unpleasant a communication. I hope he will not press the Clause any further.

§ Sir H. NIELD
The hon. Gentleman's very graceful words are such that I cannot resist. I must withdraw the Amendment, at the same time thanking him for the way in which he has expressed himself, and the great care with which on this occasion he has conveyed his negative to me.