HC Deb 23 July 1919 vol 118 cc1425-30

The houses to which Rule 8 of No. V. in Schedule A (which confers relief in certain cases in respect of the cost of maintenance, repairs, insurance, and management of houses) applies, shall be any house the annual value of which, as adopted under Schedule A, does not exceed—

  1. (a) where the house is situate in the Metropolitan police District, including the City of London, seventy pounds;
  2. (b) where the house is situate in Scotland, sixty pounds; and
  3. (c) whore the house is situate elsewhere, fifty-two pounds;
and Sub-section (3) of the said Rule 8 shall be amended accordingly:

Provided that no repayment of tax shall be made under the said Rule 8 in respect of the cost of maintenance, repairs, insurance, or management if or to such extent as the said cost has been otherwise allowed as a deduction in computing income for the purposes of Income Tax.—[Mr. Chamberlain]

Brought up, and read the first time.


I bog to move, "That the Clause be read a second time." This Clause also is one which carries out a promise which I made in Committee.

Clause accordingly read a second time, and added to the Bill.

NEW CLAUSE.—(Relief in Respect of Earned Income.)

The following Sub-section shall be substituted for Sub-section (3) of Section fourteen of the Income Tax Act, 1918, which deals with the expression "earned income":

(3) For the purposes of this Section the expression "earned income" means—

  1. (a) any income arising in respect of any remuneration from any office or employment of profit held by the individual, or in respect of any pension, superannuation, or other allowance, deferred pay, or compensation for loss of office, given in respect of the past services of the individual or of the husband or parent of the individual in any office or employment of profit, or given to the individual in respect of the past services of any deceased person, whether the individual or husband or parent of the individual shall have contributed to such pension, superannuation allowance, or deferred pay or not; and
  2. (b)any income from any property which is attached to or forms part of the emoluments of any office or employment of profit held by the individual; and
  3. (c)any income which is charged under Schedule B or Schedule D, or the rules applicable to Schedule D, and income accruing to an individual from the ownership of stocks, shares, securities, or property, the income from which he receives by reason of the carrying on of his business or profession, and from which Income Tax has been deducted before receipt of the income by him or is assessed under Schedules A and i), and he shall, on application, be repaid the difference between the rate of tax deducted or paid and the 1427 rate which he should be assessed according to the amount of his total income from all sources.—[Mr. G. Locker-Lampson.]

Brought up, and read the first time.


I beg to move. That the Clause be read a second time. It is not so formidable as it looks on the Paper. Down to the end of paragraph (b) it is the law as it at present stands. My Amendment really consists only of paragraph (c), and it had to be framed in this form in order to bring it within the rules of order. The Amendment is designed to relax the present very strict interpretation of what is known as earned income. Under the present Income Tax law, among other things, earned income is considered to mean any income chargeable under Schedule B or D, and as immediately derived by the individual from his calling, profession, trade, or vocation. I should like the House to note that word "immediately," because it really lies at the centre of the Amendment. I submit that this definition and the way it is construed by the Income Tax authorities is not nearly wide enough. If I may, I will give two examples. Take the case of a stock-jobber. He has to hold shares, and very large blocks of shares, for the purpose of his business. Without holding them he could not carry on this business at all. If he holds shares in trading concerns only, but holds them merely for the purpose of business, the full rate of 6s. in the £is deducted. If, on the other hand, he holds Government or Colonial securities, those come under Schedule C, to which the earned rate of income does not apply at all. So that he is hit in both cases. He cannot make a reduction on his shares in trading concerns, although it is his proper business to hold these stocks; he cannot make the reduction because they are not considered to be "immediately" held for the purpose of his business. T cannot see why that should be alleged.

With regard to the Colonial or Government securities which lie may hold, they are entirely outside the scope of what is known as earned income. I think that is very unfair. Take the case of a builder who builds houses for the purpose of selling them. It is quite conceivable that the builder is not able to sell them for some time, and that the only thing he can do to recoup himself is to let them, pending sale. Naturally, he lets them in connection with his business as a builder. In the case of sales, supposing he sold them straightaway he is assessed under Schedule D and gets all the advantage of the rate under that schedule. But suppose he lets his houses before selling them, in regard to the income from the letting of the houses he is assessed under Schedule A at the full rate of 6s. in the £ he is taxed at the full unearned rate. That again does not scorn to be at all fair. My point is that all increments which accrue to a trader or business man in connection with the business he is carrying on, which can be shown to be absolutely necessary for the business, ought to be dealt with at the earned rate. My Amendment is designed to bring that about.


I beg to second the Motion.


The point has been put clearly and succinctly by the lion. Member, but I am not sure that he himself realises how destructive it would be of the present distinction between earned and unearned income. The basis of the distinction is that income maybe of two kinds. A portion of it may be dependent on the personal activities of the receiver, a portion may be the result of the past activities of himself or anybody else, a return upon capital accumulated by him or by them which continues even though he himself no longer makes any personal exertion in the securing of it. In the first case, the income would cease if the man retired from business, and, of course, it would cease if he died. In the second case, even though he retired or died the income would still continue. That is the broad distinction between what is described as earned and unearned income. The proposal comes to this: that where a person. in pursuance of a business and for the purpose of a business, derives income from invested capital and not from personal exertion, income of a kind which will go on whether he continues his business or not, that income should be treated as if it were the result of his personal activity and put into the category of earned income. It would be impossible to maintain the distinction between earned and unearned income if T accepted the Amendment. It would give to those who both hold investments and derive income from invested capital and from business exertion an opportunity of being assessed on a more favourable scale in respect of a considerable portion of their unearned income than any other taxpayer not so situated. It would differentiate between unearned income in the hands of one person and that in the hands of another. I am sorry to say I cannot accept the Amendment, which would be fatal to the whole basis of the distinction between earned and unearned income.


I believe my right Friend is right in his argument, but I look upon this as judgment overtaking him for using a wrong word. "Earned" is a wrong word.


I am responsible neither for the definition nor for the language in which it is framed.


I am regarding you as an incorporation of souls carrying on the traditions of the Treasury. It would be very much clearer if we could have a distinction where the income is income that lasts and may be handed on to others and where it is an income that dies or ceases with the exertion of the person who receives it. In the case of a man who makes his money and has also to save out of his money enough for those dependent on him, it is right that he should be taxed more lightly. If he has money invested he can leave it and he need not save out of his income to that degree. The proper word to be used is not "earned." If the language were more explicit my right hon. Friend would not be exposed to Amendments of this kind.


I do not propose to press my Motion, but I do not think the Chancellor of the Exchequer quite realises what is my intention. If a man gave up his business he could not claim to be assessed at the earned rate after giving up his business. It is only while he gets his income during the carrying on of his business that I wish to give him the advantage of the earned rate.

Motion and Clause, by leave, withdrawn.


There are three Clauses standing on the Paper in my name, and I should like to move the second of them. The third, I understand, is technically out of order.


I am rather doubtful about the Clause referred to. It is very indeterminate, and of a rather hypotheti- cal character. I think that the hon. Member had better state his case on the first of the Clauses.