§ 5.0 p.m.
§ Now with regard to raising the revenue. The Inland Revenue proposals which I have just described will not affect this year's revenue to any appreciable extent, and we are, therefore, still confronted in our balance sheet with an excess of expenditure over revenue, at existing rates, of £28,964,000. My friends, and all who know my fiscal views will not be surprised to hear that for this amount I shall look to direct taxation. I propose an increase of 6d. in the standard rate of In come Tax. I shall, however, revise the existing graduation so as to protect small incomes, whether earned or investment, from additional liability. Instead of following the ordi- 2676 nary course of giving a relief of 2s. 3d.. on the first £225 of taxable income, I shall give a relief of 2s. 6d. on the first £250. This change in the graduation has rather remarkable results. It has the important effect that about three-quarters of the whole number of income Tax payers will not be affected by the increase in the rate. Let me illustrate its effect on small incomes. There will be no increase in the Income Tax bill of unmarried or widowed persons with income, all investment, not exceeding £485 a year, or with income, all earned, not exceeding £582. A married man with three children will not be called upon to pay more tax unless his income, if investment income, exceeds £735 or unless the income, if earned, exceeds £882. Under these points, and of course under even higher points where there are more than three children, the Income Tax bill will be the same as it was last year, or for some people even a trifle less. I have prepared a comprehensive table which will appear in the White Paper showing the effect of these changes upon various incomes and the poundage of the Income Tax in those cases.
I should like at this point to mention a widespread delusion as to the burden of Income Tax, although I am sure it will still conveniently survive. Every Income Tax payer talks as if he paid 4s. in the £ on all his income. Not one Income Tax payer in 50 pays at that rate. Out of the 2,250,000 who pay something in Income Tax there are not 50,000 who pay at 4s. in the £. No person with an income below £3,000 a year pays the full rate, and the great majority do not pay more than from a few pence to 2s. in the £.
As regards life insurance allowance I propose to leave the old rates of 2s., 3s. and 4s. unchanged. For the overwhelming majority of taxpayers the gain from the change of graduation will be found to outweigh any loss due to the retention of the old rates of life insurance relief.
The increase in the standard rate necessitates special provisions in regard to deduction of tax from dividends paid out of the taxed profits of companies. Up to 1927 tax was deductible from these dividends at the accruing rate over the period in which the profits were earned. As part of the right hon. Gentleman's 2677 scheme for simplification of the Income Tax, it was enacted in the Finance Act of 1927 that tax should be deductible from dividends at the rate in force at the time of payment. This creates a difficulty especially in the case of companies who pay their dividends about this time of the year. They may have paid them before the increase was known or they may have reached such a point in the preparation of the warrants that it would be impracticable to make the change. I propose that this opportunity should be taken to put on the Statute Book provisions which will meet this small difficulty once and for all, not only in the case of an increase in the rate but also in the happy eventuality of a decrease at some future date.
The extra sixpence standing alone would produce about £29,000,000 in a full year. Allowing for the cost of the change in graduation, which amounts to £5,000,000, that I propose, it will produce about £24,000,000 in a full year and £21,000,000 in the current year. I am still about £8,000,000 short of my requirements for the year.
I now come to the other part of the Income Tax which used to be called Super-tax but which my predecessor has re-christened Surtax. One of the most curious features of the simplification of the Income Tax which was carried out at the instance of the right hon. Gentleman is that the rates at which Surtax is payable in any year are laid down in the Finance Act of the preceding year. This is an anomaly that I propose to bring to an end. I propose to put the Surtax on the basis on which all taxation should be, namely, that the rate of the tax payable in any year falls to be determined by the financial needs of that year. The increase in the standard rate of Income Tax is of course borne by the Surtaxpayers as well as other In come Taxpayers, but the financial needs of the current year are such that I feel bound to call on the Surtaxpayer to supplement his additional payment of Income Tax by an additional payment of Surtax in this year. I propose an increase of rates. Particulars will be set out in detail in the White Paper. It increases the initial rate from 9d. to 1s. in the pound, and the rate for that part of the income in excess of £50,000 a year 2678 from 6s. to 7s. 6d. This will yield £12,500,000 in a full year and £7,500,000 in the current year.
I have now to turn to the other main item of direct taxation—the Death Duties. The Estate Duty stand out among all our taxes in its extraordinary expansion since the War. At. the termination of the War the yield of the Estate Duty stood at less than £25,000,000. This was levied on a capital passing at death of less than £300,000,000. The capital coming under charge to Estate Duty has now passed £500,000,000, and the yield of Estate Duty has reached £70,000,000. I propose that for all estates exceeding £2,000,000 the rate of duty shall be increased from 40 to 50 per cent. I propose to amend the existing scale from £120,000 upwards by increases of either 1 per cent. or 2 per cent. from £120,000 to £250,000 with a growing increase from £250,000 onwards to reach a rate of 50 per cent. on estates exceeding £2,000,000. The new scale will give a harmonious progression, and its details will also be found in the White Paper. It is estimated that it will yield about £7,000,000 in a full year and £3,000,000 in the current year.
The total effect of the changes in Income Tax, Surtax and Estate Duty which I have just described is to yield a revenue of £31,500,000 in the current year and £43,500,000 in a full year.