HC Deb 19 July 1927 vol 209 cc347-57

I beg to move, to leave out the Clause.

I move to leave out this Clause because I feel that the House even now does not fully realise what it really means, and that it would involve an extra year's surtax. That is due to the fact that the Chancellor of the Exchequer in making his Budget speech made it quite clear that this alteration was merely made in the interests of simplicity. The hon. Member for Great Yarmouth (Sir F. Meyer) quoted a portion of the speech of the Chancellor of the Exchequer. He might have added these words: The change is one of form rather than of fact."—[OFFICIAL REPORT, 11th April, 1927; col. 83, Vol. 205.] On the Committee stage, the hon. Member for Brighton (Sir Cooper Rawson) pointed out that this was an alteration which involved the payment of a further year's surtax and the Attorney-General replied in these words: Under Super-tax, people paid the tax for a year less than they ought, for they have paid it not in the year they first entered it, but the year after. Now we are changing the system."—[OFFICIAL REPORT, 30th June, 1927; col. 754, Vol. 208.] It seems to me that this is not merely a change in form but a change in fact, and it is a very substantial fact that every Super-tax payer during his life or his executors after him shall be asked to pay an additional year's Super-tax. I wish to do the Chancellor of the Exchequer the greatest possible justice in this matter, and I am sure that he did not realise that that was the effect of this alteration. Had he done so he would not have stated that it was merely an alteration in form and not in fact, and he would have told the House how much revenue will be realised annually in years to come by this very important change. It is very difficult to estimate what the gain to the revenue will be. I have tried to ascertain, and approximately I think the revenue will gain to the extent of £3,000,000 per annum.

There is another aspect of this matter which deserves consideration. Super-tax was first imposed in the Finance Act of 1910, and it was payable in the year 1909–10. If the Super-tax payer lives for 20 years, during which 20 years Super-tax is imposel, he should be called upon to pay the tax for 20 years and not for 21 years. But supposing the taxpayer dies, say, on the 6th April, 1929, he will have lived for 20 years during which Super-tax has been imposed, his executors will be liable to pay Super-tax for the last year of his life, because that tax is payable on his previous year's income, and his executors must further pay tax for the year after he dies because that tax as a Surtax will be based upon the Income Tax payable during the last year of his life, so that actually the taxpayer himself or his estate, if we pass this Clause, will be required to pay tax for 21 years although the Super-tax has been imposed for 20 years only. That means that the liability to pay Super-tax hasbeen put back a year earlier than was sanctioned in the Finance Act, 1910, or if this Clause is passed now Super-tax will be paid twice in one year. In view of the Chancellor of the Exchequer's statement that this is a change in form rather than in fact, and in view of the fact that no estimate has been placed before the House as to the increased revenue to be derived from this extra tax in the years to come I think a case has been made out for the withdrawal of this Clause. If, on the other hand, it is desired in time to come to impose what really amounts to an additional Death Duty, then the House should be told what the real reason is. The simplification, to my mind, is not a good enough reason. We should be told why this revenue is required and what is the amount it is going to produce, because there should be a very good reason for this additional burden on the already overburdened taxpayer.


I beg to second the Amendment.

The Financial Secretary dealt with this matter partly in reply to the Amendment moved to Clause 37 by the hon. Member for Great Yarmouth (Sir F. Meyer). He gave in his reply the ground of simplification and did not really face the issue involved. The Super-tax payers number 100,000, and they pay £65,000,000 a year in round figures. About 3,000 of these people die in a year and as they are generally at their richest when they die, their share of the Super-tax is above the average and the figure of £3,000,000 suggested by the hon. Member for Tam-worth (Sir E. Iliffe) is certainly near the truth. These people will pay about £50,000,000 in Death Duty, so, in effect, the Clause increases the Death Duty from £50,000,000 to £53,000,000, which is an increase of 6 per cent. on the average in the various rates of Death Duties. If it desired to increase the Death Duties by that amount, then it should be done in a manner whereby it could be discussed in all its implications and its effects on unemployment and on capital could be considered, but to introduce it by a side wind and accidently, as has been done, is another matter. I doubt whether the Chancellor appreciated what the simplification of the law would involve.


I fully appreciate the fact that while in certain directions the simplification scheme meant a loss to the Exchequer, in this respect there was a gain to the revenue of an almost exactly similar amount.


I am glad to hear it was not done through ignorance. If that be so, it has been done through malice. That feature was not emphasised when the Chancellor of the Exchequer opened his Budget Statement, or the subsequent Debates on the matter might have taken a different character if this had been realised earlier. The point made by the hon. Member for Tamworth is that it represents a material change and is adding to the burden of the taxpayer. [An HON. MEMBER: "Shame!"] An hon. Member opposite says "Shame" I am one of those who regard most forms of taxation as injurious to business. I want taxation to be kept as low as possible, and I regard all forms of taxation which make saving more difficult as peculiarly disadvantageous, particularly for employment, and especially in the heavy constructive industries. For this reason, I have at all times when speaking on this matter said that some form of reduction of direct taxation would be a real stimulus to employment. I have preached that at election time, and I see no reason why I should not say it in the House of Commons. The Clause creates a grievance which should be met. It is rather a late stage in the Finance Bill to meet it adequately, because it can only lie met satisfactorily by an Amendment dealing with the liability at death. Nobody wishes to destroy the principle of simplicity, and though the Chancellor of the Exchequer says it would involve him in some loss, presumably because he introduces it at a time when the Surtax will first be paid in a year of Tow profit, it ought to lead to substantial economies in administration.

Mr. CHURCHILLindicated dissent.


The right hon. Gentleman denies that the simplification will lead to any economy in administration. I think it ought to lead to such an economy. It seems absurd that where two sets of documents were being prepared and only one document is to be prepared in the future, it should not lead to a reduction of administrative expenditure. If it does not, there should be some re-organisation in the Department which deals with such matters.

The ATTORNEY-GENERAL (Sir Douglas Hogg)

My hon. Friends in proposing this Amendment seemed to doubt whether the real purpose of this Clause was merely simplification or whether there was some subtle design of increasing revenue under the guise of simplification. I should like at once to reassure their minds on that point. There is, as far as we are able to judge, no net gain in revenue by reason of this alteration. It is quite true that in some regard there will be an increase in revenue; equally in some other regard there will be a loss in revenue, and, as far as we can ascertain the gain, on the one hand this will about counterbalance the loss on the other. Perhaps the simplest illustration of the loss is by that virtue of the changing system Schedule E assessments are all to be made in future on the previous year's income, instead of on the current year's income as at present, and the result of this will be a very substantial loss of revenue to the Exchequer.


It will not be a year less.


The result will be that the revenue will have just about the same income as if there had been no alteration.


There is an extra year's taxation in the other case.


The distinction is that in the case of people who come within Schedule E they will pay less Income Tax and Sur-tax than they would if the alteration were not made. They are put back one year as the scale goes up. The net result will be about to balance the extra amount. Therefore, if it were a matter of financial advantage, there would be no profit in making the alteration. I say frankly to the House that it cannot be the object of this law to gain some advantage to the revenue because there is no advantage to the revenue. The real and only reason for making the alterations, as has been stated by my right hon. Friend the Chancellor of the Exchequer in his Second Reading speech, and as was stated a few moments ago by the Financial Secretary to the Treasury, is to simplify Income Tax returns, not from the point of view of helping administration, but from the point of view of rendering the matter a little less complicated to the taxpayer. At present, as some of my hon. Friends have experienced, one is bombarded with requirements from different assessors in different parishes for returns of income. Sometimes you may have five or six or more applications for different returns in respect of different items of property. The result of these Amendments, when they have been carried into effect, will be that there will be a single return of the whole income which will be the foundation upon which the whole Income Tax liability of the taxpayer is assessed. By Income Tax, I mean the whole Income Tax, which includes both the standard rate, which is equivalent to the present Income Tax, and the Sur-tax, which is the additional rate charged on the higher income.

The method of collection will be that the Income Tax will be paid on the 1st January, or by deduction in the year of assessment. With regard to the Surtax, there is a postponement of the date on which the money is to be paid to the following 1st January, which gives the taxpayer a year's grace, the reason for that being, both that the necessary calculations to assess liability will not have been done in time for an earlier payment in many cases, and also that if we were to insist on an earlier payment the result would be that in the year of change Super-tax payers would have to pay two years' tax in one year, and nobody would desire or expect them to do that. I have elaborated that because it is a little important that the facts should be understood. I should like to explain, as the point was made, that it is not true to say that if the taxpayer dies in the course of a year he has to pay Surtax or Income Tax for the whole year. He has to pay Income Tax and Surtax in respect of the income he receives in that year, because, through the ordinary provisions of the Income Tax Act, 1918, which were incorporated, he will only pay his Surtax and Income Tax on the income which actually accrues to him during the year before his death. That being so, it results that in the case of all Super-tax payers who have come into that privileged class in any year since the first year of its imposition, they will pay Super-tax or Surtax in one shape or another for exactly the number of years for which they earned the Super-tax income. They will pay Super-tax or Surtax on the exact Super-tax or Surtax income which they received during those years, neither more nor less.

10.0 p.m.

It is true that at present a man pays for a less amount of income than he receives, and that anomaly is necessarily removed when you provide that the Surtax has to be paid on the income of the year just as the Income Tax is payable, but he pays on the actual income which he receives during the period that he is in receipt of Super-tax. Then it is said by the hon. Member for Tamworth (Sir E. Iliffe) that those subjects who were so fortunate as to be already in receipt of Super-tax income before 1909 have begun paying Super-tax in receipt of their income from the very first day of the Finance Act. The hon. Member says that those people pay more Super-tax than in the years during which the Super-tax was imposed. That just depends on whether you regard the Super-tax which was charged in the first year, when there, were great confusions and complications by reason of the political troubles that arose out of the Budget during the first two years, as imposed on the previous year when the income was earned, or on the year when it was charged and measured only by the previous year. The fortunate class to which the hon. Member refers do not pay Super-tax for more years than they have received Super-tax income. They pay it, calculated from the very beginning, in 1909, down to the time of their death, assuming that they had Super-tax incomes from the year before the Finance Act, 1909. I should like to remind my hon. Friend that these matters, although they have been dealt with in the present Finance Bill, represent proposals which will have to be put before Parliament before they become executive, and will need, of course, to have a Resolution for next year, because they do not take place until next year's Budget. If, therefore, it is found that any of my hon. Friends have not fully appreciated the effects of the various Clauses which are before the House—I admit, at once, that it is not an easy thing to understand the language of the Finance Bill; I appreciate it sofully that I have collaborated with the Chancellor of the Exchequer in getting a Committee set up to make it simpler—if its effects have not been fully appreciated, there will be plenty of time before the necessary Resolution is brought forward next year fully to consider the Measure.


Compared with the economic profundity of the hon. Member for Reading (Mr. H. Williams) I must confess my abysmal ignorance, and I rise for some enlightenment. Whenever there is any suggestion that rich people should be taxed, either before they die or after they die, we are always told, on the lines of the speech of the hon. Member for Reading, that the taxation of very wealthy people injures industry and prevents employment. That argument has been put forward by the hon. Member to-night. I do not understand his point of view, and I confess my colossal lack of knowledge of the elements of political economy. I do profess, however, to have some idea of the principles of logic, and I really cannot understand why it should always be assumed that the only people capable of saving are those who have a lot of money; and that, if the money is distributed more widely among the people, the saving in that case cannot possibly be as large or as adequate.

I have been reading the newspapers this morning, and I find that every paper has leading articles and other kinds of articles on the subject of an exhibition which is being held in London, called the Advertising Exhibition. I read an account of a speech made by the Duke of York on the subject of advertising. The burden of those speeches was not the necessity for saving, but the necessity for spending. We are told that the art of publicity is an art which ought to be fostered, in order that people should be encouraged to spend their money rather than to save it. If that is really the point of view of business people, that people cannot buy goods unless they spend rather than save their money, and that the idea that the fortunes of very rich people must be conserved in order to provide by their savings the necessary capital for the fructification of industry, it savours very much of humbug.


I do not wish to follow the hon. Member for West Islington (Mr. Montague) into a disquisition on the comparative virtues of saving and expenditure, but I should like to get back for one moment to the point before us in this Clause. Nobody will quarrel with the simplification of the system of Income Tax and Super-tax—not even the lawyers. The complications will be quite sufficient to give them plenty of work for some time to come. But it is well that the House should clearly understand what the position here is between what the Chancellor of the Exchequer says is going to be his loss and his corresponding gain. According to the Attorney-General, I think it is quite clear that the loss which the revenue will sustain is going to be not by any sort of remission of tax, but by means of a lower yield in consequence of the change in the method of assessment. On the other hand, it is equally certain that the gain which is going to take place results not from an increase from the yield because of the change of assessment, but by the imposition of a definitely new tax. It is all very well to say that, if a man comes under the Super-tax class in a certain year and remains in that class for 20 years he only pays 20 years' Super-tax; but I remember, when the Super-tax was first introduced, that a great deal was made of the fact that it was a deferred tax, and that the taxpayer would have one year free. However, it is no use splitting hairs as to whether he pays for 20 years in 20 years or for 19 years in 20 years.

As the law has stood hitherto, a man pays the tax in one particular financial year on his income for the previous year for the present year. The result of this change is to be that what he pays in the present year is treated as a deferred tax belonging to the year before. The consequence is that when he dies his estate has to pay an extra year, which it has never had to pay yet under the law as it stands. I do not know that I am going to quarrel with that; at any rate, there is something to be said for it. If the Chancellor of the Exchequer is to lose money in one way, no doubt it is his business to find it in another; but my grievance is that the matter has been introduced and brought before the House —I do not use this expression in an offensive way—almost under a subterfuge. I said a few words on the Amendment which was moved on this point on the Committee stage. The point was discovered by a number of accountants and other people who have to deal with taxes, and it was assumed to be an error in drafting. It was never supposed by anybody that this was intended to be a new tax until the Chancellor of the Exchequer frankly acknowledged in Committee that it was so.

When it was discussed in Committee, I made some reference to the Standing Orders of the House and said that apparently a new tax was to be imposed without a Financial Resolution. I was told that the explanation was that a Financial Resolution was necessary before it was actually imposed, but that the Clause was not out of order because it was not to become operative until next year, when it would be covered by the ordinary Income Tax and Super-tax resolution, I have taken the trouble to make some further researches into that question and I am bound to say that the result has been that I am inclined to think, and anyone who has studied the matter carefully would agree, that it is in accordance with the rulings which have been given in the past on this particular subject. It is said that you cannot have a Financial Resolution until you are imposing a tax, and that when you are proposing a clause which is only going to impose a tax after it has been fortified by a Financial Resolution in a future year, that it would be unreasonable to have a Financial Resolution before the clause. But I think this is an occasion when the House should reconsider whether its financial procedure does not require some kind of reform.

The great virtue in these days, whatever might have been its origin, of the Financial Resolution has been that has given notice of an intended new tax and that the new tax can be discussed on the Financial Resolution. Here you have a definite case where the House only discovers when it is discussing a clause in the Committee that a new tax is being imposed. I was told that the House was getting even more warning than if this had been done by a Financial Resolution. But let the House see what actually happens. We get a Clause in the Bill sprung upon us without a Financial Resolution; we pass that, and we are told that it must have a Financial Resolution next year. But what actually happens next year? We will get an ordinary Financial Resolution to sanction the imposition of Income Tax and Super-tax, and then some few words are introduced into that Resolution including the provisions of the Finance Act of the previous year. Who is to understand from that unless they follow the thing very carefully, that by passing that Financial Resolution they are sanctioning and giving legal effect to an entirely new tax which has never been discussed on a Financial Resolution? If it were a bigger matter it might be one upon which the House could legitimately make a complaint.


On a point of Order. We are discussing Clause 41.We are not discussing whether this is a Clause that needs a Financial Resolution. This matter having been raised on Committee stage, now on the Report stage it is not relevant whether this needs a Financial Resolution.


It seems to me that this is quite relevant. The point which is made is that, although this Clause is not to become operative in the current year, it is leading up to a new tax, or a new assessment by a change in the method of assessment. It seems to me that that is a point which can be brought before the House.


I understand that we are discussing Clause 41, and the hon. Gentleman is trying to make out that this ought to have had a Financial Resolution preceding it, instead of us having to wait till next year for the Financial Resolution. I submit that, this being the Report stage, while the matter might have been raised on the Committee stage, it is not relevant now, and that it is not in order to argue it.


I cannot agree with the hon. Member. It seems to me that this is quite a sound and relevant point to a Clause which is making a change in the method of assessment for taxation in the future year. It is quite true that it does not, according to our recent practice, for the reasons stated by the hon. Member, require a Resolution, but I am treating the point as one directed to the merits of the. Clause itself.


I had just come to the close of my remarks, and I would only add this in justification of what I am saying, that the absence of the warning which a Financial Resolution would have given, would have been a very good reason for supporting a Motion to leave out this particular Clause. I do not want to press that so far as I am concerned. All I wanted to do was to draw attention to what seems to me to be rather a recent development of our financial procedure which does not altogether tend to the control of this House over expenditure, and granting of money.


In view of the fact that we shall have a further opportunity to consider the matter before the Clause comes into operation, I beg leave to withdraw the Amendment.

Amendment, by leave, withdrawn.