HC Deb 18 July 1927 vol 209 cc56-65

"Sub-section (1) of Section fifteen of the Finance Act, 1925 (which makes allowances in respect of earned incomes), shall have effect as if for the words "one-sixth" there were substituted the words "one-fifth."—[Mr. Lees-Smith.]

Brought up, and read the First time.


I beg to move, "That the Clause be read a Second time."

4.0 p.m.

This Clause is rather more controversial than those we have discussed up to the moment, and it is intended to call attention to the proportion of taxation which is at present paid by the payers of Income Tax on earned as against unearned income. The Income Tax differentiates between earned income and unearned income, and it gives to those who pay on earned income a rebate of one-sixth as against those whose income is derived from securities, investments and property. We propose to increase this rebate from one-sixth to one-fifth, and we do so in order to express our view that the proportion of taxation borne by earned and unearned income respectively is at present unfair. If the whole system was so readjusted that there was a smaller proportion of the total borne by those who pay on earned income and a larger proportion of the total borne by those who pay on unearned incomes that would give us a wider general equity and a more widespread economic advantage. To give two main reasons for this proposal, the first is that the possessor of an earned income is the possessor of a precarious income. A man whose income depends on earnings knows that if he loses his connection, if he loses his goodwill, if he falls ill, if he is struck by any of the blows or contingencies of life, that income comes to an end, and, in any case, he has to look forward to the time when he retires, or when he dies, when the income is inevitably bound to disappear. The anxieties which arise from this source are not confined to manual workers. There are, as we know, hundreds of thousands of small professional men, the lower paid Income Tax payers, who are harassed and worried by the insecurity, by the knowledge that if they lose their posts or lose their earning-power, those who look to them, and they alone, have no one left to protect them. There is a very great difference between that man and the man with the same income derived from War Loan, or investments, or other sources of unearned income. The second man is free from any of those changes and chances of life. He falls ill, or dies, or grows old—his income comes smoothly in all the time. He need not save; he need not insure. His time is his own to follow whatever tastes or interests he prefers. The situation of those two men is not the same. One man, in my opinion, is at least twice as well situated as the other, and a differentiation of tax of only one-sixth is an altogether inadequate measure of their relative economic position.

There is one other reason we wish to give on behalf of this Clause. This view has been powerfully, in fact, overwhelmingly strengthened by the fall in prices that has taken place in the last seven years. I remember last year, in the Budget discussions, the Chancellor of the Exchequer pointing out that the workers of this country had improved their position in the last seven years because prices had fallen one half, and real wages had risen to a corresponding extent. That is one side of the picture. The other side of the picture is that their money wages have fallen by about £700,000,000 a year, and that fall has more than counterbalanced the advantage gained from the fall in prices. But if you come to the particular section whose position we are now discussing, those who live on securities, they have obtained the advantage of the fall in prices, and their income has not suffered the corresponding reduction. If they had their money, say, in debentures, and were getting six, eight or ten per cent. in 1920, the contract still holds good, and they are presumably getting that still. If they invested their money in 6 per cent. debentures in 1920—


I wish the hon. Member would tell us of those investments.


The hon. Gentleman does not know of 6 per cent. debentures?

Lieut.-Colonel Sir FREDERICK HALL

You said 8 or 10 per cent.


If the hon. and gallant Gentleman does not know of any 10 per cent. debentures—


I do not know of any.


If the hon. and gallant Member goes back to 1920, there were many debentures of 10 per cent.


Can the hon. Gentleman quote one?


Whatever the percentage, the fact is that the amount received in 1920 is being received still, and as prices have fallen by one-half, the value has doubled in the last seven years. What is the effect of that upon the whole financial policy of the Government? The central object of the Chancellor of the Exchequer has been to bring down direct taxation, and he has succeeded in reducing Income Tax and Super-tax so as to distribute between £30,000,000 and £40,000,000 amongst the Income Tax and Super-tax payers. But who has received the bulk of the money? I see from the latest figures of the Inland Revenue that 70 per cent. of the Income Tax comes from those who pay on unearned income, so that it means that more than half the bulk of the relief in taxation through the reduction of Income Tax and Super-tax which the Chancellor of the Exchequer has granted during his tenure of office has gone to this class, whose incomes have doubled in the last seven years. That is, in our opinion, a scandal and an injustice to every other taxpayer in the country, and as a first step towards bringing it to an end, I move the new Clause which stands in my name.


I beg to second the Motion.


The hon. Gentleman, in moving the Second Reading of this Clause, has covered rather familiar ground. Hon. Members opposite have frequently expressed their view with regard to the relation between direct and indirect taxation. The hon. Member knows quite well that the views he has expressed are not generally held, at any rate, to the extent to which he expressed them, on this side of the House, and, apart altogether from the views which may be held on one side of the House or the other on the merits of direct and indirect taxation, I do not think that particular question has any but the most indirect relevance to the proposal the hon. Gentleman is making here. The differentiation, of which the earned income allowance is only one factor, is, as the House is aware, a general scheme for the purpose of differentiation and graduation of the Income Tax. That system, as hon. Members know, was introduced in 1920. Up to that time the purpose of graduation had been carried out by a different system of leaps and bounds at different stages of income. All these anomalies and inconveniences were done away with by the new system, introduced in 1920, by which graduation was put upon its present footing of a number of allowances. At that time the earned income allowance was an allowance of one-tenth, and that was the amount which was recommended by the Royal Commission, of which the right hon. Gentleman opposite, may I say, was a distinguished member, and as he was a party to the recommendation that it should be a uniform allowance of one-tenth, with a maximum reduction of £200, I find it a little difficult to understand why he is now—if he is—supporting the proposal of the hon. Gentleman beside him.

But it does not end there. We would have been on very strong ground if that recommendation of the Royal Commission had remained to the present moment. But, in 1925, a very large move was made in the direction of an increased allowance to earned income by my right hon. Friend in the Budget of that year, when he changed the proportion from the one-tenth, at which it was placed on the recommendation of the Royal Commission, and put it at one-sixth instead. That was a change which, at the time, was estimated to have cost the Exchequer no less a sum than £7,500,000, and it would require very much stronger reasons than the hon. Gentleman has offered to the House to persuade us that that very large addition, which was given such a short time ago as 1925, should be reviewed at the present moment and changed. And what reason has the hon. Member for asking the House to make this change? I cannot help thinking that this is really what we usually call a "hardy annual," and the record of this particular proposal during recent years is not without interest. I find that in 1926, in 1925, in 1923 and in 1922, this proposal was moved by a Labour Member. There is the very significant omission of 1924. In 1924 a similar Clause was moved, but it was not moved by a Labour Member. It was moved on that occasion by a Liberal Member. My recollection is not good enough to know whether the hon. Member who moved it to-day was a Liberal or a Labour Member at that time. I have not had the curiosity to look at the Division Lists on that occasion to see on which side the hon. Member's vote was cast.


I was not in the House.


If the hon. Member was not in the House, he is free from all responsibility. He was very fortunate if he was not in the House in 1924. At all events it is an interesting record. The Labour party moved this new Clause in 1922, 1923, 1925, 1926 and now in 1927, but rejected this Amendment by 187 to 69 in 1924. I gather from the figures and from my recollection of the composition of the House at that time that as the new Clause was moved by a Liberal in 1924, the 69 who supported it must have been all Liberal Members, and the then Chancellor of the Exchequer in resisting the new Clause had the support of the Tory party. We were together apparently in those days in resisting the new Clause which the hon. Member has moved to-day. In those circumstances we must allow the record to be increased by one more to-day, and next year we shall know the numbers by which it was defeated.

But I have to state one single fact which by itself would have been quite sufficient to have persuaded the House to resist this new Clause, and that is that if it were adopted it would cost no less than £3,100,000 in a full year. The hon. Gentleman was candid enough to say that he was moving the new Clause not merely as an isolated proposal for dealing with the finance of the year, that what he wants to do is to alter the whole system. He says that the whole system should be readjusted so as to give larger relief to earned as distinct from unearned income. That was a candid statement by the hon. Member. He can hardly expect that at this stage of our proceedings we have the time or the information or even the preparation to alter the whole system in the direction that he desires. In these circumstances, having regard to the cost involved, I think the House will support us in keeping the Bill as it stands.


The airy persiflage of the Financial Secretary is all very well, but he omitted to mention that when the Labour Government was in office and the then Chancellor of the Exchequer produced his Budget, my right hon. Friend included within the Clauses of his Budget considerable reliefs to earned income which the present Government have not seen fit to include. If the Conservative Government, instead of making huge presents to people who live on rent and interest and upon unearned incomes, had seen that indirect taxation was reduced, and if they had endeavoured to make the lot of the poorer sections of the community a little bit easier than it is, there might have been some point in the argument of the Financial Secretary that 1924 showed a

lapse in regard to this particular new Clause. I do not wish to prolong the Debate, but I cannot help comparing the point of view expressed by the Government in opposing this new Clause and that expressed in the Debate of Thursday last. Then we were discussing the question of Poor Law relief in a certain quarter of London, and the Conservative party justified a standard of Poor Law relief that was simply intolerable to anyone with any humane feelings whatever. When an opportunity is given to the Government to make the position of the poorer sections of the community—not necessarily the poorest—a little bit easier with regard to the alleviation of taxation, then they plead that they cannot do anything at all, that the Budget must stand four-square as it is, and that the people who do not earn their incomes are to have an advantage against those who do earn their incomes. That means, of course, that those who earn their incomes have to pay more than they would otherwise pay.

That is the attitude that I want to emphasise here, and do my best to emphasise away from this House. The Conservative party in the constituencies continually plead that they represent the middle classes of the community. They talk about being the people who stand for the backbone of the country. The middle class vote goes very largely to the Conservative party. The Labour party proposes to do a bit of good to the middle classes, and a Conservative Government, which stands for big finance and big business, rejects the proposal contemptuously. It is the kind of thing that will do very little credit to the Government when it does eventually go to the country.

Question put, "That the Clause be read a Second time."

The House divided: Ayes, 79; Noes, 206.

Division No. 265.] AYES. [4.23 p.m.
Adamson, Rt. Hon. W. (Fife, West) Brown, Ernest (Leith) Day, Colonel Harry
Adamson, W. M. (Staff., Cannock) Brown, James (Ayr and Bute) Duncan, C.
Alexander, A. V. (Sheffield, Hillsbro') Buchanan, G. Dunnico, H.
Attlee, Clement Richard Charleton, H. C. Gardner, J. P.
Baker, Walter Campton, Joseph Gillett, George M.
Batey, Joseph Cove, W. G. Graham, Rt. Hon. Wm. (Edin., Cent.)
Beckett, John (Gateshead) Cowan, D. M. (Scottish Universities) Greenwood, A. (Nelson and Colne)
Bondfield, Margaret Crawfurd, H. E. Griffiths, T. (Monmouth, Pontypool)
Bowerman, Rt. Hon. Charles W. Dalton, Hugh Groves, T.
Briant, Frank Davies, Ellis (Denbigh, Denbigh) Grundy, T. W.
Broad, F. A. Davies, Rhys John (Westhoughton) Hall, F. (York, W. R., Normanton)
Hall, G. H. (Merthyr Tydvil) Lunn, William Snowden, Rt. Hon. Philip
Hamilton, Sir R. (Orkney & Shetland) MacDonald, Rt. Hon. J. R. (Aberavon) Stamford, T. W.
Hardie, George D. Mackinder, W. Sutton, J. E.
Harris, Percy A. MacLaren, Andrew Thomas, Rt. Hon. James H. (Derby)
Hartshorn, Rt. Hon. Vernon Maclean, Nell (Glasgow, Govan) Thorne, W. (West Ham, Plaistow)
Henderson, Rt. Hon. A. (Burnley) Maxton, James Thurtle, Ernest
Hirst, G. H. Montague, Frederick Townend, A. E.
Hirst, W. (Bradford, South) Morrison, R. C (Tottenham, N.) Trevelyan, Rt. Hon. C. P.
Hore-Bellsha, Leslie Oliver, George Harold Viant, S. P.
Hutchison, Sir Robert (Montrose) Pethick-Lawrence, F. W. Whiteley, W.
John, William (Rhondda, West) Ponsonby, Arthur Wilkinson, Ellen C.
Kelly, W. T. Potts, John S. Wilson, C. H. (Sheffield, Attercliffe)
Kennedy, T. Scurr, John
Lansbury, George Shaw, Rt. Hon. Thomas (Preston) TELLERS FOR THE AYES.—
Lawrence, Susan Smith, Ben (Bermondsey, Rotherhithe) Mr. Allen Parkinson and Mr. A.
Lee, F. Smith, H. B. Lees (Keighley) Barnes.
Lowth, T. Snell, Harry
Acland-Troyte, Lieut.-Colonel Forrest, W. Mitchell, W. Foot (Saffron Walden)
Agg-Gardner, Rt. Hon. Sir James T. Foxcroft, Captain C. T. Mitchell, Sir W. Lane (Streatham)
Albery, Irving James Fremantle, Lieut.-Colonel Francis E. Monsell, Eyres, Com. Rt. Hon. B. M.
Amery, Rt. Hon. Leopold C. M. S Ganzoni, Sir John Moore, Lieut.-Colonel T. C. R. (Ayr)
Apsley, Lord Gates, Percy Moore-Brabazon, Lieut.-Col. J. T. C.
Baldwin, Rt. Hon. Stanley Gibbs, Col. Rt. Hon. George Abraham Moreing, Captain A. H.
Balniel, Lord Glyn, Major R. G. C. Morrison, H. (Wilts, Salisbury)
Barnett, Major Sir Richard Gower, Sir Robert Nail, Colonel Sir Joseph
Beamish, Rear-Admiral T. P. H. Grace, John Nelson, Sir Frank
Betterton, Henry B. Grant, Sir J. A. Newman, Sir R. H. S. D. L. (Exeter)
Birchall, Major J. Dearman Grattan-Doyle, Sir N. Nicholson, Col. Rt. Hn. W. G. (Ptrsf'ld.)
Bird, E. R. (Yorks, W. R., Skipton) Greenwood, Rt. Hn. Sir H. (W'th's'w, E) Nield, Rt. Hon. Sir Herbert
Boothby, R. J. G. Grenfell, Edward C. (City of London) Nuttall, Ellis
Bourne, Captain Robert Croft Grotrian, H. Brent Oakley, T.
Bowyer, Captain G. E. W. Gunston, Captain D. W. Oman, Sir Charles William C.
Briggs, J. Harold Hall, Lieut.-Col. Sir F. (Dulwich) Ormsby-Gore, Rt. Hon. William
Brocklebank, C. E. R. Hammersley, S. S. Percy, Lord Eustace (Hastings)
Broun-Lindsay, Major H. Hannon, Patrick Joseph Henry Peto, Sir Basil E. (Devon, Barnstaple)
Brown, Col. D. C. (N'th'l'd., Hexham) Harrison, G. J. C. Peto, G. (Somerset, Frome)
Brown, Brig.-Gen. H. C. (Berks, Newb'y) Hartington, Marquess of Pilcher, G.
Buchan, John Harvey, G. (Lambeth, Kennington) Pilditch, Sir Philip
Buckingham, Sir H. Headlam, Lieut.-Colonel C. M. Pownall, Sir Assheton
Burton, Colonel H. W. Heneage, Lieut.-Col. Arthur P Price, Major C. W. M.
Butler, Sir Geoffrey Henn, Sir Sydney H. Raine, Sir Walter
Cadogan, Major Hon. Edward Hoare, Lt.-Col. Rt. Hon. Sir S. J. G. Rawson, Sir Cooper
Campbell, E. T. Hogg, Rt. Hon. Sir D. (St. Marylebone) Remnant, Sir James
Cautley, Sir Henry S. Hope, Sir Harry (Forfar) Rhys, Hon. C. A. U.
Cayzer, Sir C. (Chester, City) Hopkins, J. W. W. Rice, Sir Frederick
Cecil, Rt. Hon. Sir Evelyn (Aston) Hopkinson, A. (Lancaster, Mossley) Richardson, Sir P. W. (Sur'y, Ch'ts'y)
Chadwick, Sir Robert Burton Hume, Sir G. H. Roberts, Sir Samuel (Hereford)
Chamberlain, Rt. Hn. Sir J. A. (Birm., W.) Hunter-Weston, Lt.-Gen. Sir Aylmer Robinson, Sir T. (Lancs., Stretford)
Chamberlain, Rt. Hon. N. (Ladywood) Hurd, Percy A. Ropner, Major L.
Charteris, Brigadier-General J. Hurst, Gerald B. Russell, Alexander West (Tynemouth)
Christie, J. A. Inskip, Sir Thomas Walker H. Salmon, Major I.
Churchill, Rt. Hon. Winston Spencer Jackson, Sir H. (Wandsworth, Cen't) Samuel, A. M. (Surrey, Farnham)
Churchman, Sir Arthur C. James, Lieut.-Colonel Hon. Cuthbert Sandeman, N. Stewart
Cobb, Sir Cyril Kennedy, A. R. (Preston) Sanders, Sir Robert A.
Cochrane, Commander Hon. A. D. Kinloch-Cooke, Sir Clement Sandon, Lord
Cockerill, Brig-General Sir George Knox, Sir Alfred Scott, Rt. Hon. Sir Leslie
Couper, J. B. Lamb, J. Q. Simms, Dr. John M. (Co. Down)
Craig, Sir Ernest (Chester, Crewe) Lane Fox, Col. Rt. Hon. George R. Skelton, A. N
Crooke, J. Smedley (Deritend) Lister, Cunilffe, Rt. Hon. Sir Philip Smith-Carington, Neville W.
Crookshank, Col. C. de W. (Berwick) Locker-Lampson, G. (Wood Green) Smithers, Waldron
Crookshank, Cpt. H. (Lindsey, Gainsbro) Loder, J. de V. Somerville, A. A. (Windsor)
Cunliffe, Sir Herbert Long, Major Eric Spender-Clay, Colonel H.
Davies, Maj. Geo. F. (Somerset, Yeovil) Looker, Herbert William Sprot, Sir Alexander
Davies, Dr. Vernon Lucas-Tooth, Sir Hugh Vere Stanley, Lieut.-Colonel Rt. Hon. G. F.
Davison, Sir W. H. (Kensington, S.) Lumley, L. R. Steel, Major Samuel Strang
Dean, Arthur Wellesley Macdonald, R. (Glasgow. Cathcart) Storry-Deans, R.
Drewe, C. Macdonnell, Colonel Hon. Angus Stuart, Hon. J. (Moray and Nairn)
Eden, Captain Anthony MacIntyre, Ian Sueter, Rear-Admiral Murray Fraser
Edmondson, Major A. J. McLean, Major A. Sykes, Major-Gen. Sir Frederick H.
Edwards, J. Hugh (Accrington) Macmillan, Captain H. Tasker, R. Inigo.
Elliot Major Walter E. McNeill, Rt. Hon. Ronald John Templeton, W. P.
Ellis, R. G. Macquisten, F. A. Thomson, F. C. (Aberdeen, South)
Elveden, Viscount Mac Robert, Alexander M. Thomson, Rt. Hon. Sir W. Mitchell-
Erskine, Lord (Somerset, Weston-s.-M.) Makins, Brigadier-General E. Titchfield, Major the Marquess of
Evans, Captain A. (Cardiff, South) Malone, Major P. B. Tryon, Rt. Hon. George Clement
Everard W. Lindsay Manningham-Buller, Sir Mervyn Vaughan-Morgan, Col. K. P.
Fairfax, Captain J. G. Margesson, Captain D. Wallace, Captain D. E.
Falle, Sir Bertram G. Marriott, Sir J. A. R. Ward. Lt.-Col. A. L. (Kingston-on-Hull)
Fermoy, Lord Meller, R. J. Waterhouse, Captain Charles
Fielden, E. B. Meyer, Sir Frank. Watson, Rt. Hon. W. (Carlisle)
Forestier-Walker, Sir L. Mitchell, S. (Lanark, Lanark) White, Lieut.-Col Sir G. Dairymple
Williams, Com. C. (Devon, Torquay) Wise, Sir Fredric Wragg, Herbert
Williams, Herbert G. (Reading) Wolmer, Viscount Young, Rt. Hon. Sir Hilton (Norwich)
Wilson, R. R. (Stafford, Lichfield) Womersley, W. J.
Winby, Colonel L. P. Wood, Sir Kingsley (Woolwich W.) TELLERS FOR THE NOES.—
Windsor-Clive, Lieut.-Colonel George Wood, Sir S. Hill- (High Peak) Major Cope and Mr. Penny.
Winterton, Rt. Hon. Earl Worthington-Evans, Rt. Hon. Sir L.