CLAUSE 16.—(Income Tax for 1935–36.) (Hansard, 19 June 1935)

§ Mr. MABANE
I beg to move, in page 14, line 22, to leave out "and sixpence."
The effect of the Amendment would be to reduce the standard rate of Income Tax by 6d. I make no apology for moving the Amendment. It is no good reason for not moving an Amendment that there may be small prospect of it being granted, because surely it is often the case that Members of this House who desire reforms to be carried out achieve the reforms ultimately by persistence one year after the other, and if those of us who desire this reduction cannot get what we wish this year we may very well get the reduction next year. In St. Stephen's Chapel there is a picture which has impressed itself on my mind ever since I have been a Member of the House. That picture depicts the occasion when Sir Thomas More refused the demand of an arrogant Executive, through the mouth of Cardinal Wolsey, for excessive supplies. It is the historic function of this House to resist the demands of the Executive for supplies. It seems that sometimes in recent years that function has been forgotten and that Parliament has tended to concentrate its attention on spending money rather than on the more important object of preventing money being spent. I think that Members of Parliament can have no complaint against excessive spending by Departments if they make no effort to secure that the Departments are kept very tightly in check in their demands for funds.
Wise administration and low taxation go together. Therefore I make no apology for suggesting in this Amendment that the burden upon the people should be reduced by altering the standard rate of Income Tax from 4s. 6d. to 4s. There are those who apparently believe that the Government can spend money better than we can spend it ourselves. I am sure that the Chancellor of the Exchequer could not convince me that he or the Government can spend our money better than 376 we can ourselves, and I do not think he would advance that argument. But if I understand the argument of the hon. and learned Member for East Bristol (Sir S. Cripps) I think it is generally that he can spend my money better than I can myself. I am not clear whether the reverse is true—that I can spend his money better than he can himself. Therefore I move the Amendment, and I am glad to say that many of my hon. Friends support me in it.
I am aware that the Amendment will raise the old quarrel between direct and indirect taxation. The hon. Member for Leigh (Mr. Tinker) often argues, when this matter comes up for review, that the Government have altered the relationship between direct and indirect taxation. He has advanced the argument that there is some peculiar merit in direct taxation as opposed to indirect taxation, and he often quotes figures to show that the proportion has been altered in a way that is disadvantageous from his point of view. If the hon. Member quotes those figures to-day I ask him to go back further than he usually goes. I ask him to go back to 1913–14. He will then find that the proportion between direct and indirect taxation is more advantageous to his point of view now than it was in 1913–14. Sometimes when this matter has been under review, I have heard some of my friends on the Liberal benches opposite urge that direct taxation has some peculiar merit.

§ Mr. DAVID MASON
Hear, hear.

§ Mr. MABANE
I see that the hon. Member for East Edinburgh (Mr. D. Mason) still takes that point of view. I have always looked upon him as a Liberal of the old Gladstonian tradition. Let me quote to him what Mr. Gladstone said in 1861. He should be the last to differ from what Mr. Gladstone said: I never can think of direct and indirect taxation except as I should think of two atractive sisters, who have been introduced into the gay world of London, each with an ample fortune, both having the same parentage (and the parents of both I believe to be Necessity and Invention); differing only as sisters may differ, as where one is of lighter and another of darker complexion, or where there is some more agreeable variety of manner, the one being more free and open and the other somewhat more shy, retiring and insinuating. I cannot conceive any reason why there should be unfriendly rivalry between the admirers 377 of these two damsels. I am therefore, as between direct and indirect taxation, perfectly impartial. I hope that the hon. Member for East Edinburgh will realise than he is not following the Gladstone tradition in urging that there is some peculiar merit about direct taxation.

The DEPUTY-CHAIRMAN
I would remind the hon. Member that we are not now engaged in a general Budget Debate. This is an Amendment to reduce the standard rate of Income Tax by 6d. and I hope the hon. Member will not seek to go into the whole question of direct and indirect taxation on that Amendment.

§ Mr. MABANE
I was referring to the matter because it had been raised before in these debates. Indeed it has almost invariably been the case in recent years, that debates on this subject have very largely hinged on the question of the merits of direct as against indirect taxation. However I leave that point and I will endeavour to justify my proposal on other grounds. It may be said that there is no margin from which to grant this proposed reduction in tax. At an earlier stage in these debates I and other hon. Members suggested that there was ground for believing that the present Finance Bill under-estimates the revenue which the Chancellor is likely to receive and over-estimates the expenditure which will be incurred. The Chancellor said that apparently I desired him, simply by a stroke of the pen, to write up the receipts likely to be derived from Customs and Excise. But I do not want him to do that. I want him to make his estimates of revenue in the light of his own speeches and the speeches of his colleagues in the Government who say that trade is improving and is likely to continue improvement. I think that is so and that there is a considerable margin there. If we turn to Income Tax itself, we find that last year the Chancellor estimated that he would receive by way of Income Tax £219,000,000. Actually he received £228,000,000. He received something like £9,500,000 more than he anticipated. I think there is every possibility that this year again he will receive a surplus on the Income Tax returns.
I do not think it is possible to justify a reduction of Income Tax however, 378 solely on the Income Tax returns of last year or on the likelihood of revenue being greater than the Chancellor anticipates. I prefer to justify it on another ground. If Income Tax is reduced, new confidence is at once given to business. Those who are engaged in industry are prepared to go forward with schemes which they might otherwise be reluctant to undertake. Thus employment is provided. The immediate effect of a reduction of Income Tax is to lighten the burden of national expenditure in a great number of ways. The restoration of financial confidence and the encouragement of business men to engage in new enterprises, which result in employment, lead to a diminution of the expenditure which the Chancellor has to anticipate.
I have always argued that there is a close connection between the amount of unemployment and the rate of Income Tax. That view has been hotly disputed by hon. Members on the Labour benches but it is important to bear in mind the figures relating to this matter in recent years. It may be said that the apparent connection which those figures show between the rate of Income Tax and the number of unemployed is a coincidence but the coincidence is very striking. For example, in 1922–1923 Income Tax was reduced to 5s. from 6s. and in that year there was a fall of 500,000 in the number of unemployed. In 1923–24 the Income Tax was reduced to 4s. 6d. and there was a further fall of 200,000 in the unemployed. I am taking the months of April. In 1924–25 there was no reduction and there was an increase of 170,000 in the number of unemployed. In 1925–26 the Income Tax was reduced to 4s. and there was a decrease of 200,000 in the number of the unemployed. In 1930–31, when the party opposite were in power and the Income Tax was increased to 4s. 6d. there was an increase of 800,000 in the number of unemployed. Last year the Chancellor reduced the rate of Income Tax and there has been, as we all know, a fall in the amount of unemployment during the year. Hon. Members opposite may seek to dismiss the connection between these figures as a mere coincidence but it is remarkable that the coincidence has been of such long duration. I strongly urge that a reduction in the standard rate of Income 379 Tax is one of the best ways of securing an improvement in the economic condition of the country.
If the Chancellor in reply can indicate to those who wish this form of tax to be reduced, that he believes a reduction in the standard rate of Income Tax would have a substantial effect on trade and industry, that I am sure would give us great hope and encouragement. Some of us would like to see the right hon. Gentleman adopt a new theory of budgeting. For example a business man who has to make an appropriation in his annual accounts for advertising, cannot see any definite revenue coming from it. But he knows that if he carries out the advertising with skill he is likely to derive revenue from it in the form of additional profits. I would ask the Chancellor to look at this matter in the same fashion and to reduce Income Tax in order to receive the benefit that will eventually accrue. By adopting that course, I submit he would at the end of the year produce not unbalanced national accounts but, on the contrary, accounts that were balanced in a much better way than our accounts are balanced at present. It would not be a novel step to adopt that view because the right hon. Gentleman adopted it when he altered the rate of taxation on beer and it seems to me that what was good enough in the case of beer ought to be good enough in the case of Income Tax.
There is another point which I have in mind in moving this Amendment. I take this opportunity of submitting to the Chancellor that it would be far better to reduce the standard rate of Income Tax than to reduce the Surtax. There are those who advocate a reduction in the rate of Surtax at the earliest possible moment. That may be desirable, but it is my view and the view of many other hon. Members that a further reduction in the standard rate of Income Tax would do far more for the country and would be far more acceptable. This is not the first time that an Amendment of this kind has been moved. Naturally those who are associated with it would be glad if the Chancellor accepted it, but we feel that that is almost too much, even to compensate. If, however, the right hon. Gentleman in his reply could indicate to us that he appreciates the value of a reduction in the standard rate and the 380 benefit to the business community involved, I think we should be satisfied that we had not moved this Amendment in vain.

§ Mr. JOHN WILMOT
I am sure that the Committee is indebted to the hon. Member for Huddersfield (Mr. Mabane) for the revolutionary discovery which he has made, but they will feel aggrieved, as I imagine the whole nation will feel aggrieved, that he has kept it under his hat so long. Here is a quick and easy way of dealing with the unemployment problem completely. You have only to reduce the standard rate of Income Tax to the appropriate level and the unemployment problem disappears. I am surprised that the hon. Member has not let the Chancellor into his secret before now. Here is a great Government which has been struggling with this problem for years, with very little result. Such results as have been achieved, they claim to have been achieved by their tariff policy. And yet all the time a simple reduction in the rate of Income Tax would have done the trick without any harm to anyone.

§ Mr. MABANE
I am sure the hon. Member does not want to misrepresent me. Naturally I did not suggest for a moment that any reduction in Income Tax would do away with unemployment entirely. I suggested that it would help, and I gather from the hon. Member's argument that he thinks it would not.

§ Mr. WILMOT
I do not think the hon. Member is entitled to gather that from my remarks. I thought that if a little decrease in the tax would make a little decrease in the unemployment figures, then a large decrease in the tax would make a large decrease in the unemployment figures; but perhaps I was wrong, and perhaps we ought to hear this remarkable doctrine explained at length. The only point I would like to put to the hon. Member in considering this problem in greater detail is this: What, in fact, becomes of the money the Chancellor takes by way of Income Tax out of the pockets of the taxpayers? Does the hon. Member suppose that the Chancellor pockets it, or buries it, or that in some way it mysteriously disappears? Or does he not think the Government are just as much a spender as is the private taxpayer, and that, in fact, every penny 381 collected by the Government in taxation is spent making work for somebody somewhere? Many of us believe that the sort of work that is made by public departments or public authorities, for instance on housing, or in the relief of the starvation of the unemployed, produces work which gives a more satisfactory social result than the private spending of the individual necessarily does. Surely it is quite beside the point to argue that a reduction in the tax is either here or there in considering its relation to unemployment. The explanation of the hon. Member's figures is surely that in times of prosperity the tax tends to reduce, and the number of unemployed tends to reduce, and that in times of great stringency—these illogical booms and slumps we get under a capitalist system—taxation rises, and unemployment rises with it. They are inter-connected both as to cause and as to effect.
I wish, however, to raise another matter, and I am not quite sure that I am in order in raising it on this Amendment, or whether I should delay the matter until we debate the Question, "That the Clause stand part of the Bill." But might I be permitted to say that before any reduction in the standard rate of tax is considered there seem to me to be two matters of much more public urgency. The first is to make greater allowance to the small Income Tax payer. I do not wish to delay the Committee on this theme for long, but the fact remains that since 1930 the position of the small Income Tax payer, as compared with the big Income Tax payer, has got steadily worse. We all understood last year that the Chancellor of the Exchequer, if I may say so, did realise what an injustice he had done to the small taxpayer, the clerk, the shop assistant, and such people, in reducing the standard rate while leaving the enormous increases that were laid upon these people when the allowances were cut away, and we had hoped that this year the injustices of last year's decision would be set right. They have not been set right. They have been eased, but the small taxpayer, the £3, £4 or £5 a week man, is still paying very much more in tax than he was paying in 1930, while the big taxpayer with a four-figure income is paying much less in tax than in 1930. Therefore, before there is any alteration in the standard rate which primarily affects the big taxpayer, those 382 allowances should be restored, and, what is more, inasmuch as there has been a very large increase in the amount of taxation upon food and necessaries which are paid in increased proportion by the poor, because the poorer you are the larger the proportion of your income that is spent upon necessaries, and because these poor Income Tax payers are also making a very heavy proportionate contribution to the Exchequer by way of direct taxation, they should certainly reap the benefit of increased and not decreased allowances.
The second thing which must be attended to before any reduction in standard rate is considered is that some urgent and stringent measures should be taken to deal with the wholesale evasion of the payment of Income Tax by the wealthier classes of Income Tax payers. It is this matter which I desire at the moment to bring to the attention of the Chancellor. It is not desirable, in the public interest, that one should go in very great detail into the methods by which Income Tax and Surtax payments are evaded, but there are methods, and they are perfectly legal methods, as the taxpayer is entitled to find any legal method by which he can evade the tax. The fact is that the very rich, who can afford to employ expert advisers, legal and accountancy advisers, maintain a system by which they systematically avoid the payment of their due tax. It must be remembered that every £100 of tax which these people evade adds to the burden of the smaller Income Tax payer, and I think it probably would turn out true to say that if the hon. Member could join with me in persuading the Chancellor to take steps to stop this evasion, then the inflow of tax would be sufficient to permit of a reduction in the rate.

The DEPUTY-CHAIRMAN
I think the hon. Member is now getting on to a matter which should be raised on the question of the Clause standing part.

§ Mr. WILMOT
I was hoping that it would be in order to show that one means of achieving the object which the hon. Member for Huddersfield has in mind is to see to it that those who should pay the tax do in fact pay it, and I am rather disappointed that no step has been taken this year to tighten up the regulations, 383 and make one or two obvious improvements in the law which would have this result. I will not detain the Committee more than two or three minutes by indicating where these improvements should be directed.

The DEPUTY-CHAIRMAN
That is a matter which the hon. Member should have raised on the Second Reading. It is not connected with any matter now in the Bill.

§ Mr. WILMOT
I am anxious to keep within your ruling, Captain Bourne, but, inasmuch as we are now discussing a Clause which has to do with the collection and amount of the Income Tax, and the amount of the Income Tax is necessarily related to the yield of the tax, because the rate is fixed by reference to the yield, I thought I might be in order in discussing methods by which the yield of the tax could be brought up to its full amount in order to make it possible to consider a reduction of the rate.

The DEPUTY-CHAIRMAN
I am afraid not. I think the hon. Member does not appreciate that the machinery Clauses, as they are generally called, are put quite separate from the Clauses which fix the standard rate for the year. I think that is a matter which really ought to be raised in debate on the Budget or Second Reading. It is really a Second Reading point.

§ Sir STAFFORD CRIPPS
Is it not relevant to this matter to discuss the problem whether it is possible to provide some alternative method of getting the revenue lost by the reduction of the tax by sixpence? I submit that it is one of the vital matters for the Committee to consider, in discussing whether it should or should not reduce the tax by sixpence, what the result of that reduction would be, and whether there are other means by which the revenue that would be lost by the reduction could be made good.

The DEPUTY-CHAIRMAN
I think the hon. and learned Gentleman is overlooking the fact that it would not be open at this stage either for the Committee or the Chancellor of the Exchequer to propose these machinery Clauses without a Financial Resolution.

§ Sir S. CRIPPS
In so far as it concerns the administration of the collection of 384 Income Tax, would not that be open to discussion at this stage?

The DEPUTY-CHAIRMAN
I think the hon. Member was going very far beyond the question as to whether the law is being administered. He was suggesting that the law was not satisfactory, which is going a very long way from this Clause.

§ Mr. WILMOT
I very much appreciate now what I did not before, and am very grateful for your guidance. What I was going to say in relation to the necessity of improvement in the law, I realise would be out of order at this stage. But part of what I was going to say had to do with the administration of the present law. There are under this heading two main methods in which the administration of the present law, it seems to me, could be considerably tightened up. There is, first of all, the question of capital profits.

The DEPUTY-CHAIRMAN
Of course, this would really come more appropriately on the question of the Clause standing part. If it be the wish of the Committee to take the discussion now, I have no objection, provided it is understood that it is not to be repeated on the question of the Clause standing part.

§ Mr. WILMOT
I quite understand it would be most undesirable and unnecessary to discuss this question again on the Clause standing part, but I was not quite sure what was the appropriate time to do it. As I was saying, one very fruitful method of evasion is the evasion of taxation of capital profits. Normally, profits which arise from an improvement in the value of the taxpayer's capital are not liable to Income Tax, unless, of course, the taxpayer carries on a business which is one which reaps its main income from periodical improvements in its capital. There is a City operation known as "stagging," for instance, which employs the genius and the energy of a very large number of professional speculators. These gentlemen apply for new issues, and as soon as they get their allotment letters they sell them as they hope at a premium. Those who are most successful in these operations are most in a position to know at the time of their application whether the issue will go to a premium or not, inasmuch as they have in their offices the orders of other people which, if sufficient, will allow the issue to go to a premium. [An HON. MEMBER: 385 "What are the methods?"] I must be excused from giving any indication as to the methods of making these profits.

§ Major PROCTER
Is the hon. Member in favour of giving a rebatement of Income Tax where capital is lost?

§ Mr. WILMOT
Perhaps the hon. and gallant Gentleman will allow me to finish my sentence. It is a fact that there is a large number of people who draw a part of a very large income from capital profits, and these profits are taxable if the earning of such profits is the main business of the taxpayer. Therefore, the hon. and gallant Member can answer his own question, or get the Chancellor to answer it, very much better than I can answer it. The net profit on the year for professional operators is taxable as income.

§ Major PROCTER
But a speculator's trade losses are taken into account.

§ Mr. WILMOT
I said the net profit.

§ Major PROCTER
In the case of the ordinary person who makes a capital investment, losses should be taken into consideration.

§ Mr. WILMOT
The hon. and gallant Member has been good enough to anticipate my speech several paragraphs ahead. The professional speculator pays tax on his net income—

§ Major PROCTER
Then there is no evasion.

§ Mr. WILMOT
No evasion up to that point, but if the hon. and gallant Member will have the kindness to wait a moment, he will see when the evasion comes in. A large amount of evasion goes on by these operations being carried out in the names of nominees, who are not professional operators and are therefore not liable to be taxed on capital profits, nominees who are not liable to Super-tax and who therefore, even if they are taxed, are taxed at a lower rate than the real, beneficial operator.

The DEPUTY-CHAIRMAN
It now appears that the hon. Member is advocating an alteration in the law.

§ Mr. WILMOT
With great respect, I suggest that no alteration in the law is required to effect the reforms which I 386 am now suggesting. I believe I am right in saying that the Chancellor of the Exchequer is armed with the fullest legal powers to collect the tax from the places where I am suggesting it should be collected, and that all that is wanted is a slightly different method of assessing the various forms of income for taxation. I will therefore ask the Chancellor of the Exchequer to bear in mind the fact that it is generally known in the City that a very large number of professional advisers are perpetually engaged in advising people how to escape Income Tax on capital profits.

§ Sir ARTHUR MICHAEL SAMUEL
The hon. Member has rather left the point. He was talking about profits made by non-professional people speculating in a system called, I think, stagging. I do not quite understand it, but is he quite right not to remember that casual profits are very distinctly defined, not only by the Revenue, but by a recent judgment in the High Court? Consequently the point that he is making is already provided for in the practice of the Revenue.

§ Mr. WILMOT
I am very much obliged to the hon. Baronet, and I am aware of that decision with regard to capital profits.

§ Sir A. M. SAMUEL
Casual profits.

§ Mr. WILMOT
Casual capital profits, but I am directing the attention of the Chancellor of the Exchequer, first, to the practice of professional operators carrying out their operations in the names of nominees and thus escaping a tax which we all agree ought to be paid. The second point to which I wish to draw the right hon. Gentleman's attention is the method of evading the tax by revocable trust. This is a practice which is engaged in very widely by Super-tax payers. There are professional people here again who have drawn up standard forms. I have one on my desk, and—

The DEPUTY-CHAIRMAN
Is the hon. Member suggesting that the Chancellor of the Exchequer can deal with this matter under the existing law?

§ Mr. WILMOT
I am, because in the Finance Act of 1922 a Section was included—

§ Sir A. M. SAMUEL
Section 21.

§ Mr. WILMOT
—to deal with this very matter, and it is the somewhat lax administration of the law under that Section, I suggest, which gives rise to the evasion which I am now mentioning. This particular class of evasion is a method of settling upon dependants, children and others, an annuity. The Super-tax payer deducts his Income Tax, and the annuitant, being a person taxable at a lower rate than the one who donated the annuity, is able to recover a large portion of that tax; and since this annuity is devised under a form which enables it to remain under the control of the Super-tax payer, it has the effect of relieving the Super-tax payer of a very large part of his tax.

§ Mr. MABANE
Is the hon. Member correct? It is not devised so that it is under the control of the taxpayer. He must say he has no control over it.

§ Sir A. M. SAMUEL
The very essence of the Section is that the money should be so placed that it is irrevocable, but the hon. Gentleman said that it was revocable.

§ Mr. WILMOT
There are two forms of it, and I hesitate to go into too great detail, lest this evil practice should grow by advertisement, but since hon. Members press me, I would point out that there are two forms of it. There is the minimum of six years for the dependent relatives, and that is revocable at the end of six years; and there is the life annuity for the children, which is irrevocable by the donor, but which can be altered and reduced to a purely nominal sum if only a provision is inserted that in order to alter it the consent of some third party is required. I have on my desk the standard form sent out by a firm of professional advisers, instructing the Super-tax payers exactly how they can get rid of the great bulk of their Super-tax, and for a small or a large fee, according to the size of the income, these gentlemen will exercise their professional skill advising you how to avoid your tax and, what is more, how to avoid it without fear of getting into a criminal prosecution. I am sure it is in the interests of all of us that these practices should be stopped, because the result of them in the aggregate must be a tremendous loss to the Exchequer.

§ The CHANCELLOR of the EXCHEQUER (Mr. Chamberlain)
The hon. Member has repeatedly said that he is not suggesting any alteration in the present law, yet he has just explained that in the circulars with which he is so familiar it is represented to the people to whom the circulars are addressed that they can carry out this evasion without any fear of prosecution. How does he reconcile those two statements?

§ Mr. WILMOT
The Chancellor of the Exchequer will appreciate that I am not a lawyer. It is difficult for me to say exactly how these things should be legally effected. That is not my job, and it seems to me that the Chancellor of the Exchequer should be otherwise interested in this subject than in finding a flaw in the precise manner in which the case is presented. The fact remains that there is wholesale evasion of tax, and that there is known to be wholesale evasion of tax. This evasion is carried out only by the big tax-papers, and therefore a comparatively few cases, a few thousand or hundred thousand cases, can mean an enormous loss to the Revenue. It is not done at all by small people. No small man has a chance of avoiding the payment of his Income Tax. His income is returned by his employer. The inspector of taxes knows exactly what his income is, and it is impossible for any salaried person, for the great bulk of small Income Tax payers, to avoid a penny of taxation. The net result of the evasion of tax by the rich is to load a still heavier burden on the poorer Income Tax payers. For that reason, and with apologies for any transgression of the Rules of Order that I may have made, I would press upon the Chancellor of the Exchequer the urgent necessity of taking active steps to stop tax evasion by the Super-tax class.

§ Sir A. M. SAMUEL
The hon. Member has made frequent use of the word "evasion." If he means that something unworthy is being done, which I suppose he does, and therefore that something illegal is being done—

§ Mr. WILMOT
In my view an act may be socially unworthy, though not actually illegal.

§ Sir A. M. SAMUEL
The hon. Member used the word "evasion," which was a 389 condemnation of action about which I know nothing but of which he accused his fellows. Will he bear in mind that a taxpayer has to make a declaration, and that if he declares anything that is not true, the Revenue authorities will take good steps to see that he is punished. If he does anything unworthy—

§ Mr. WILMOT
Not unworthy, only illegal.

§ Sir A. M. SAMUEL
He cannot do anything illegal, because if he did he would be punished, if found out, and it is easy to find it out. The hon. Member must bear in mind a very noble and a very true obiter dictum which fell from the lips of Lord Sumner in a great judgment in the House of Lords some years ago, when he said that there is nothing unworthy, nothing wrong and immoral, for a man to put himself outside the net of taxation, provided he does nothing illegal. These men whom the hon. Member has in mind have done nothing unworthy, unjust, or illegal, and he has no right to make that accusation when the highest Judges in the land have said that it is not immoral.

§ Mr. D. MASON
I was very much impressed by what was said by the hon. Member for Huddersfield (Mr. Mabane), who opened this Debate. Surely he did not mean to convey to the Committee that on the present Budget the Chancellor of the Exchequer could reduce the Income Tax by 6d. in the £? He is aware that that would mean a loss of some £25,000,000 to the revenue, and that the right hon. Gentleman would not be able to balance his Budget. When the hon. Member comes to think it out, while I have every sympathy with his desire to reduce the tax, I feel sure he will see that it could not be carried out as he suggests.

§ Mr. MABANE
Two years ago I moved a similar Amendment, and I was met with the same reply, that if the concession were granted, the national accounts would be unbalanced. Had the concession been granted, in fact the national accounts would not have been unbalanced, but would still have shown a substantial surplus at the end of the year.

§ Mr. MASON
That is purely hypothetical, and I do not think we can 390 pursue the matter any further. I was also much interested in what was said by the hon. Member for East Fulham (Mr. Wilmot) with regard to the hardship of continuing a high rate of Income Tax. He seemed to argue that there was a benefit in spending money, that it meant an increase of employment. If that argument were carried to a logical conclusion, it would mean that the more we spent, the more prosperous we should become.

§ Mr. KIRKWOOD
Hear, hear!

§ Mr. MASON
The hon. Member says "Hear, hear," but where does he suggest these unlimited sums would come from?

§ Mr. KIRKWOOD
All good things come from the earth. There is enough and to spare for everyone. There is an unlimited supply of all the necessaries of life to-day in the earth, and man's ingenuity has tapped the sources of nature and made nature do man's work, so that there need be no shortage of anything. There need be no limit put on the spending power of the people. It is only those who have control of all the means of life who curtail them and keep them back from the people. That is the trouble to-day.

§ Mr. MASON
I thank my hon. Friend for his reply. I am equally anxious to develop the earth, but in order to do that we must have regard to our taxation. If we can, by wise administration and due economy, reduce the burdens of industry, we shall get more out of the earth and our industries will be profitable. The taxation of this country has gone up from over £3 per head before the War to over £15 to-day. That is a colossal increase.

The DEPUTY-CHAIRMAN
I think that the hon. Member had better get back to the Amendment.

§ Mr. MASON
We are discussing the question of bringing down the Income Tax, and I think you will agree, Captain Bourne, that that depends on our expenditure, and that if we can reduce our expenditure it will be possible to accept the Amendment. That is my argument and my answer to the hon. Member for Dumbarton Burghs (Mr. Kirkwood).

§ Mr. KIRKWOOD
Will the hon. Member tell the Committee where this £15 comes from?

The DEPUTY-CHAIRMAN
Not on this occasion.

§ Mr. KIRKWOOD
It would be instructive not only to the Committee, but to the country. The hon. Member for East Edinburgh (Mr. Mason) is making out a case that because the country was taxed £3 per head at a given time and the tax is now £15, an immense burden is being placed on the individual who pays the tax.

The DEPUTY-CHAIRMAN
That is exactly the point I stopped the Member for East Edinburgh developing. This is not the occasion on which to do it.

§ Mr. KIRKWOOD
With your permission, Captain Bourne—

The DEPUTY-CHAIRMAN
The hon. Member for East Edinburgh (Mr. Mason) is in possession of the Committee.

§ Mr. KIRKWOOD
The man who has to pay £15 must have the money with which to pay it.

§ Mr. MASON
If I may return to the argument of my hon. Friend who moved this Amendment, I would say that if we could bring about a state of affairs which would enable us to reduce the Income Tax, I would welcome it and would be prepared to go into the Lobby with him in order to bring about that happy result. I suggest to the hon. Member and to the hon. Member for East Fulham, however, that neither of the policies which they advocated would bring about the desired result of increasing employment. If we could reduce our burdens by wise expenditure and wise economy, it would increase our ability to reduce the Income Tax, but the Chancellor cannot seriously be asked to do it when it would mean a loss in balancing the accounts of the year.

§ Mr. TINKER
Each year we get the protagonists for a reduction in direct taxation endeavouring to get a reduction in Income Tax. We expect hon. Members opposite to raise this point, not that they expect any change in this Budget, but it is propaganda for the purpose of the next Budget. I remember that two years 392 ago the same arguments were put forward, but nothing was done, except that the Chancellor promised to reconsider it, with the result that in the following year 6d. was taken off. Hon. Members now hope that a similar result will follow next year. It is interesting to see in a paper called the "Income Tax Payer" how they carry on this propaganda work. This paper states: Despite the concessions obtained from the Chancellor of the Exchequer in his recent Budget, the need remains for all Income Tax payers to continue to agitate for further and more extensive reductions of the burden. This society can justly claim that it suggested and pressed for all the changes which were made. But still they mean to go on pressing for further reductions. One could agree with their point of view if they did not get their reductions at the expense of somebody less well off. No one desires Income Tax payers to have to bear an excessive burden if they can be relieved without the burden being imposed on somebody else less able to bear it. I was pleased to find that the hon. Member who moved the Amendment was not out to protect the Super-tax payer. We are rather hoping that the Chancellor will see his way to impose a greater burden on them. Those who urge a reduction of Income Tax argue that it will cause more employment. Each year the argument is used that there is not money enough to finance new works owing to the burden of Income Tax, and that employers and big financiers are, stifled because they cannot use the money which has to go in Income Tax. That is a curious argument, because within the last few days loans which have been issued by local corporations have been over subscribed. The Manchester Corporation asked for a loan of £4,000,000 at 3 per cent., and it was subscribed 25 times over. That goes to show that there is money on every hand for the purpose of financing every scheme that requires it, and that there is no lack of money at all.

§ Mr. MASON
Sound schemes.

§ Mr. TINKER
At any rate, the money is there, and those who have it must be largely Income Tax payers. The Cardiff loan was also over subscribed. The argument, therefore, that there is a shortage of money can have no weight at all. The right hon. and gallant Member 393 for Ripon (Major Hills) argued on another line in a previous debate. I looked up his speech because he is always interesting on these matters. He argued that it would cause a greater consumption of goods if Income Tax were reduced, and he said that in the previous 12 months 270,000,000 more pints of beer and 700,000,000 more cups of tea had been drunk.

§ Mr. G. GRIFFITHS
The Chancellor of the Exchequer said that.

§ Mr. TINKER
The right hon. and gallant Member also said it in his speech on the 1st May. He was arguing that more would be consumed if there were remissions in tax, and that less would be required from Income Tax payers because the revenue received from beer and tea would meet the deficiency.

§ Major HILLS
I have not my speech by me, but my recollection is pretty clear that I argued that changes up or down in the Income Tax were accompanied by changes in the unemployment level up or down. I said that I did not think that was the only cause, because that would be an overstatement, but I said that the curve of unemployment did follow the Income Tax rate.

§ Mr. TINKER
Following that line of argument, the right hon. and gallant Member contended that unemployment would be reduced by a remission of Income Tax and that, therefore, greater consuming power would be given to those in employment. Does the right hon. and gallant Gentleman think that this is the way to proceed? We on these benches say that you give greater consuming power to the poorer classes by remitting indirect taxation, that the money they pay by way of indirect taxation would, if they were able to keep it by them, give them greater spending power. We say that if the Income Tax payers had to pay 4s. instead of 4s. 6d. in the pound, it would not increase their consuming power because we do not believe that any Income Tax payers go short of anything. Therefore, we say that at a time like this they are not being harshly dealt with by being asked to pay 4s. 6d. in the pound.

§ Major HILLS
That is where we differ.

§ Mr. TINKER
We are told from time to time that by keeping up this excessive burden we shall kill the goose that 394 lays the golden egg. This year the Chancellor will get £237,000,000 by way of Income Tax; last year he got £228,000,000. Clearly, the source is not being dried up by keeping the tax at 4s. 6d. In Super-tax we shall get an increase of £335,000 over last year, which shows again that we have not got to the point of killing the source of the money. Then, with regard to Death Duties—

The DEPUTY-CHAIRMAN
I think that we had better keep to the Income Tax.

§ Mr. TINKER
I agree, but one naturally follows the other because the Income Tax payer is the man who generally accumulates a fortune. [HON. MEMBERS: "Oh!"] The man who does not pay Income Tax does not accumulate a fortune and, therefore, the converse must be true.

§ Captain DOWER
An hon. Member on that side has just been explaining that the man who evades Income Tax creates the fortune.

§ Mr. TINKER
I am not speaking of the man who evades tax. I am saying that if fortunes are left it must be by the people who pay Income Tax. The man who does not pay Income Tax, the poorer man, will never accumulate money. If he had much money he would have to pay Income Tax. I was trying to show to the Deputy Chairman that that source has not dried up. I put it to the Committee that we have no right to reduce the Income Tax until the time has come when we can say that our poor people are in a much better position than they are. If we were to agree to this Amendment it would mean taking from the revenue one-ninth of the yield of Income Tax, £26,250,000. Does the hon. Member dispute that?

§ Mr. MABANE
Yes. You quoted £237,000,000 as the yield, but it is £232,000,000.

§ Mr. TINKER
I cannot allow that to go by. I have the figures here. The estimate for 1935–6, on the basis of existing taxation, is £237,000,000.

§ Mr. MABANE
On the basis of existing taxation.

§ Mr. TINKER
That is what we are talking about.

§ Mr. MABANE
No, because there is £5,000,000 reduction.

§ Mr. TINKER
I am taking the figures given by the Chancellor of the Exchequer.

§ Mr. MABANE
Look at the end. Look at the Estimates for 1935–36, and you will find the figure is £232,000,000.

§ Mr. TINKER
It would mean a reduction of one-ninth of that figure, about £26,250,000. Even if it were a few pounds less the principle is the same. Where would the hon. Member get the money from to balance the Budget? Would he say that some social services should be cut down? If he would say that some of the defence services ought to be cut down we might get agreement with him, but if he suggested cutting down the social services no one would agree with him. If he does not agree about either, he has no right to bring forward this Amendment, because if carried it would upset the whole of the Budget. In the courts, when a man appeals against a sentence or a fine the judge, if he thinks the man has been treated fairly, and has no grounds for appeal, can increase the penalty. When Income Tax payers come to this House asking for a remission of the rate of tax, if we are satisfied that they have made out no case we ought to take it upon ourselves to increase the tax. The judgment of this Committee to-day ought to be, "You have no grounds to support your case, and so we now increase the tax by 6d., just to put you in your place and warn you against such appeals."

§ Captain DOWER
Is the hon. Member in favour, and is his party in favour, of an increase in the rate of direct taxation?

§ Mr. TINKER
I will not speak for my party, because they will speak for themselves, but if the question were left to me I would say, "Yes, increase it, and take the burdens off the poorer people." If I were the judge and had to give my decision in this case I would say, "You have failed in your appeal, and therefore my decision is that there shall be 6d. more on the Income Tax." That would teach people to be more careful before bringing forward these proposals. There is another point which has been brought to my attention from time to time. The lower Income Tax payers meet their liabilities honourably and fairly, but I 396 have seen cases reported in the papers in which many of the higher Income Tax payers have failed to pay year after year, and when the time has come to foreclose it has been found that thousands of pounds were owing to the State. I ask the Chancellor of the Exchequer whether there are no means by which he could prevent this evasion year after year by large taxpayers. The authorities ought to be a bit more strict with the larger Income Tax payers and see that they pay from year to year.

§ Mr. CHAMBERLAIN
The Debate to which we have listened for the past hour has followed the course of many previous discussions on the same subject. The hon. Member for Huddersfield (Mr. Mabane) trailed his coat in front of the hon. Member for Leigh (Mr. Tinker), and the hon. Member for Leigh trailed his coat in front of my right hon. and gallant Friend the Member for Ripon (Major Hills), and each one stamped with joy on the coat tails of the other; but not a single jot of difference is made in the opinions of a single one of them. This Debate has been purely academic. No doubt it is a subject for a debating society; but I think my hon. Friend the Member for Huddersfield himself recognises that in the circumstances of to-day there is not the slightest chance of a reduction of the Income Tax by 6d. in the £. Indeed, he said that he had little hope of getting a favourable reply; but he did trust that I might be able to express some opinion as to the connection between a reduction in Income Tax and a reduction in unemployment, and he thought that if I would put my name to some declaration of that kind his time would not have been spent in vain. I cannot allow him to lay that flattering unction to his soul, because I am not disposed to commit myself to any such general and empirical declaration as that which he would desire me to make. The effect of a reduction in the rate of Income Tax might be quite different to-day from what it would have been last year or the year before. The whole thing must depend upon other conditions, which vary from time to time. If I am to make any sort of general declaration on the subject I would say that the enterprise of business and commercial people will depend upon the amount of confidence they feel 397 in what is going to happen in the future. If that confidence is strengthened by a decrease in the rate of Income Tax it is likely to increase their enterprise, but if they see that a reduction in the rate of Income Tax would have the effect of seriously unbalancing the Budget and introducing a period of unsound finance, that is not likely to increase their confidence but to have exactly the opposite result, and I should anticipate that in conditions of that kind, so far from assisting the country, it would be inclined to increase unemployment.
It is true that the hon. Member endeavours to avoid the difficulty that his proposal would cost the country £25,000,000 by suggesting that it could very easily be overcome by increasing the estimate of revenue and decreasing the estimate of expenditure. Again in a debating society you could, of course, easily do that, but if you have to accept the responsibility for your actions you think twice before you indulge in easy alterations of carefully considered estimates. When my hon. Friend says that last year I under-estimated the yield of Income Tax by £9,000,000 odd he has forgotten, or he has omitted to state, what I did say on a previous occasion, that the bulk of that excess over my estimate arose not from an increased assessment to Income Tax but from an increased rate of collection. Therefore, the extra millions which I obtained last year owing to that rate of collection, so far from being repeated this year, will mean that there is less to come in this year, because that sum might otherwise have accrued to me as arrears from last year in the course of the present financial year.
Another point has been raised by two hon. Members opposite in connection with the collection of Income Tax as it is. The hon. Member for East Fulham (Mr. Wilmot) soon found himself in a difficulty, because his case was that there was a necessity for an alteration of the law in order that certain evasions which he alleged were going on might be made subject to the penalties of the law. In spite of his assurance, I do not think he succeeded in convincing the Committee that he had any ground whatsoever for the suggestion, which I think was an afterthought on his part, that there was any laxity in the practice of 398 the Inland Revenue Board in putting into operation the law as it stands. There is all the difference in the world between the man who, in contravention of the law, does something illegal, and the man who does something which is perfectly legal although it may not have been intended by the framers of the law that he should be allowed to do it. Of course, when you get taxation up to the level at which it stands in this country you do necessarily very greatly strengthen the inducement to see whether there is some device by which you can legally evade the full amount of tax which otherwise would fall upon you, and it is only human nature that in those circumstances lawyers, and perhaps Members of Parliament sometimes, whether they are lawyers or not, should turn their wits to seeing how they can get the better of the law. From time to time, when these ingenious devices have reached a certain pitch of efficiency, it is necessary to amend the law.
It is not in order for me, however, to discuss any Amendment of the law on this occasion. I will only say that evasions are most carefully watched by the Treasury the whole time, that we have constantly under consideration methods of avoiding the intention of the law, and that we on our side exercise a good deal of ingenuity in devising new methods of what I might call "stopping the bolt hole." If I have not been able to complete measures for stopping evasions which may be going on at the present time I hope the Committee do not think that the matter is escaping my attention, or that those who employ those methods can hope indefinitely to be able to pursue them. I give that information, and I assure the Committee that the interests of the Inland Revenue Board in the efficient collection of duties are so great that they may rely upon it that no stone is left unturned to see that evasion of an illegal character is not carried out or that, if it is practised, those who lend themselves to it are properly punished.

§ Mr. WEST
I have listened this afternoon to several Members who seem to doubt that the State, having collected 399 money from individuals, can spend that money as well as those individuals themselves. The hon. Member for Huddersfield (Mr. Mabane) is quite certain that he can spend his money much better than any Government Department could. At the same time, there are those of his own political persuasion who have stated very clearly that that is not the fact. The Colwyn Committee, when discussing this very problem, said: For social purposes collective expenditure is clearly more economic than expenditure left to the individual, the individual Member for Huddersfield not excepted. The hon. Member made an interesting point, though not a new one, about the effect of income taxation upon unemployment. He produced figures showing how when Income Tax was high unemployment was high, and when Income Tax was low unemployment was low. I noticed with great interest that his figures coincided with figures quoted by the right hon. and gallant Member for Ripon (Major Hills) on a previous occasion, but, in spite of that authority behind him, I notice that the right hon. and gallant Gentleman has cautiously removed his name from the Amendment in the last few days. Probably he thought about it again and came to a different conclusion.

§ Major HILLS
I made the case so fully on the Motion that I did not think I was entitled to trouble the Committee again.

§ Mr. WEST
The right hon. and gallant Gentleman is very modest, but I think, if he made the statement again that he made a few weeks ago, it would have yet more authority. He stated that in January, 1923, when the Income Tax was 5s., there were 1,500,000 unemployed and in the following year, when the tax was reduced to 4s. 6d., the unemployed went down to 1,374,000. In January, 1931, when the tax stood at 4s. 6d., unemployment had exactly doubled as compared with the time when the tax first stood at 4s. In January, 1935, the tax was 4s. 6d. and the numbers went down to 2,300,000. The whole argument was that, as you increase Income Tax, so unemployment goes up, and, as you decrease it, unemployment goes down. It is a case of post hoc, ergo propter hoc. One might as well say that in 1920, when the Salvation Army had five bands, unemployment was a 400 million and in 1930, when the Salvation Army had only two bands, unemployment went down to 500,000; therefore the Salvation Army is the best cure for unemployment. It is a fallacy because the right hon. Gentelman forgot to mention that in 1900 the unemployment percentage was 2.5 whereas in 1913, though we had increased taxation and Income Tax, unemployment went down to 2.1 per cent. In 1920, when we had the highest Income Tax in a peace year—6s. in the pound—unemployment was at the lowest rate in the century. I would not argue that we should double the Income Tax because I know that there are many factors in unemployment which are very much more important than taxation. I have heard tariffs claimed as the cause of reduction in unemployment, and I have heard cheap money claimed as the clause. These gentlemen come forward and say it is because Income Tax has been reduced. I can quote fairly high authority, the Colwyn Committee, which said with regard to this question: We conclude with regard to enterprise that the effects of high income taxation have been almost negligible in the field of employment. Relatively income taxation has not been a factor of any high importance. I think that is evidence even more weighty than the points put forward by the right hon. Gentleman and his supporters to-day. In 1880, when the Income Tax was practically nil, we had only 6,000,000 adults employed. In 1920, when it was 6s. in the pound, we had over 12,000,000 adults employed. Multiply the Income Tax by 12 and you have double the number of people in employment. That is a fallacious argument, but it is the argument put forward by the colleagues of the right hon. Gentleman on the Front Bench, and I think he might speak to them later on in the Library.
The whole point that seems to me to run through the argument to-day is that taxation is increasing and has increased and ought to be decreased. That is not true. I find, on looking through the report of the Commission for Inland Revenue for this year, that a man with £10,000 a year unearned income in 1920 paid Income and Surtax of £4,100. In 1933 the same man paid £3,960, or £150 less. If you take into account the great fall in prices, the same person has a purchasing power 50 per cent. greater than he had 14 years ago. I should think 401 there are very few poor people whose real purchasing power has increased by 50 per cent. since 1920 and, if that be true, it goes to show that the well-to-do have benefited very much more than the average individual in the last 13 or 14 years. Table 40 of the same report shows that the actual income of Income Tax payers in 1925 was £2,400,000 and in 1935 it was £2,550,000. The actual income of Income Tax payers has gone up in that period of nine years by £150,000 per annum and taxation has gone down by £23,000,000. The average effective tax in 1924 was 27d. per pound. In 1933 it was 23d. per pound. From that point of view Income Tax payers are very much better off now than they were nine years ago even without taking into account the fall in the cost of living, which affects them as well as ordinary people. The yield of Customs and Excise has increased by £50,000,000 in the last seven years. Since 1919 it has increased by over £200,000,000. If it be true that of that vast sum two-thirds is paid by working-class people, the taxation of the poor has increased in that period by over £140,000,000. In other words, according to these figures the taxation of the well-to-do has decreased and the taxation of ordinary people has greatly increased in the same period.
As a matter of fact, in spite of the statement of the hon. Member for Huddersfield (Mr. Mabane), the vast majority of Income Tax payers do not pay 4s. 6d. in the pound now. I am not discussing tax evasion. Even the great bulk of them who are honest do not pay 4s. 6d. in the pound. I have figures here from Table 64 which show that the effective charge on a married man with two children, if he has £1,000 a year, is 2s. in the pound. If he has £1,500 a year, he only pays an effective rate of 2s. 6d. On an income of £2,000 a year the effective rate is 3s. in the pound. So, if the hon. Member wants a reduction from 4s. 6d. to 4s., he has it if he has £2,000 a year, as he ought to have.

§ Sir IAN MACPHERSON
Where did the hon. Member get these figures?

§ Mr. WEST
I refer the right hon. Baronet to Cmd. 4739, pages 76 and 81. Less than 1 per cent. of the people who are above the Income Tax limit level pay an effective rate of more than 3s. in the 402 pound. As I know my hon. Friend is one of that 1 per cent., I am not commiserating with him. I wish I could join him in his fortunate company. On the other hand, I discover that a person with an income of £100 pays 11.9 per cent. in taxation, while a person with £1,000 a year pays just 11 per cent. In other words, the poorer you are, up to a level of over £1,000 a year, the less is your percentage of taxation. The "Economist," which does not entirely support our party, in its budget supplement a month or six weeks ago, summed up the point fairly. It said: There is good reason for saying that the incidence of taxation is less fairly distributed now than at any time since the War. It should be the object of wise policy to remove some of the burdens of taxation from the shoulders of the poor. Not from the shoulders of the Income Tax payers but from the shoulders of the poor, though perhaps it thinks that those with £2,000 a year are poor. Finally, it says: Judged by the standards of equity, the poor to-day are severely over-taxed. My final point is this. I cannot understand hon. Members opposite arguing as if their Government did not wisely use the money that they extract from the taxpayers. Looking at the posters on the hoardings, I should think it was a Government of all the talents which spends every pound in a wonderful way. I am sure that the right hon. and gallant Member for Ripon will agree that £1,000 spent by a Government Department, say the Ministry of Pensions, in giving 10s. a week to 2,000 old people, would be as effective in providing employment as £1,000 spent from his own pocket in his own individual way. National spending is at least as good for employment—in my opinion it is better—than spending by individuals, however wisely they may spend. The poorer people who get the benefit of social services spend the money in clothes, boots, furniture and so on, and the expenditure provides more employment than the same amount of money spent by a wealthy Income Tax or Super-tax payer. Perhaps that is the reason why the right hon. and gallant Gentleman, thinking things out in his own intelligent way, decided to withdraw his name from the later Amendment, and to support Income Tax at 4s. 6d. in the pound.

§ Major HILLS
One point only. The figures I gave on the lath May were not selected figures. I covered the last 15 years and showed that the level of employment up or down followed the level of the standard rate of Income Tax up or down, and the figures have not been challenged and cannot be challenged. The hon. Member has taken selected years and selected figures. If I heard him aright, he went back to 1880 and compared the figures of employment then with the employment figures of 1921, a gap of 41 years. That showed a doubling of employment as there were 6,000,000 people in employment in 1880 and 12,000,000 in 1921 in spite of the largely increased Income Tax. How could he compare those figures. In 1880 there were no proper statistics of unemployment, and there has since been an immense increase in population. There was practically no Income Tax. My argument was that when there is a high Income Tax as we have had since the War, that is one of the factors which has affected the employment level. I did not say that it was the only factor, but it is very hard for anyone who has looked at the figures not to come to the conclusion that one cause of unemployment from which we unfortunately suffer is the standard rate of Income Tax. I should have liked to follow the hon. Gentleman in some of his divagations into other figures, but I shall not do so.

§ Mr. EMMOTT
It may be true, as the right hon. Gentleman said a few moments ago, that this Debate is academic in relation to the circumstances of the moment, but in no other sense is it academic, for arguments have been introduced into it which are academic neither in their nature nor in their effect. Socialists are apt to practise what they preach, or to attempt to practise what they preach, and much of the argument to which we have listened, when Socialists assume power and attempt to convert argument into practical policy, has results which are always dangerous and sometimes fatal to the societies in which they are realised. The hon. Member for East Fulham (Mr. Wilmot) stated as a general proposition that the Government is as much a spender of the money which it collects by way of taxation as private individuals, 404 and his position was that more satisfactory social results follow from the expenditure of money by Government—

§ Mr. WEST
In many cases—

§ Mr. EMMOTT
—than follow from the expenditure of money by individuals. That is the fundamental assumption which underlies not only his argument but the argument of the hon. Member for North Hammersmith (Mr. West), and upon which I wish to offer a few observations. I believe that no economic doctrine can possibly be more fallacious or more dangerous than this. The question ought, of course, to be considered not only from the end of expenditure but from the other end, the end of collection, but to do that would lead me into a wider field than I desire to enter this afternoon. I desire to say only a word upon that aspect of the subject which is concerned with the expenditure of money obtained by Government from its taxpayers.
I do not agree, comparing generally one kind of expenditure with the other, that Government as a spender of money is to be preferred to individuals. To consider the matter only from a rather technical point of view: delay and waste are always involved in the expenditure of money by Government, whether central or local, and for that reason alone I strongly dispute the truth of the proposition that, upon, a general comparison between the two kinds of expenditure, Government as a spender of money is to be preferred to individuals. But I want to say a word upon a wider consideration. The hon. Member for North Hammersmith seemed to argue that relatively poor persons spend their money in a way which is on the whole more advantageous than the way in which direct taxpayers, if taxation did not stand at a certain level, would then spend it; and he referred to expenditure upon boots and shoes and such objects which are habitually purchased for common use by these persons. But is it not true that relatively rich men and women also buy boots and shoes? Do they not spend very large sums of money in objects for common use? Of course they do. I never can understand the assumption that underlies that kind of argument that only poor men spend their money on objects which are manufactured by the labouring population.

§ Mr. TINKER
The relatively rich men and women can buy more boots and shoes.

§ Mr. EMMOTT
That, of course, is a different argument, which is directed to the standard of living of the people. It is really a social, not an economic argument.

The DEPUTY-CHAIRMAN
We seem to be getting very far away from Income Tax.

§ Mr. EMMOTT
I fear I was the offender. Hon. Members who belong to the party that sits above the Gangway are always much concerned with the problem of purchasing power. Purchasing power is derived from labour. But it is not the business of Government to distribute purchasing power among the people by levying taxation upon one class of it. The function of Government is not to distribute purchasing power by means of taxation, but to pursue a policy which shall provide opportunities of labour for the labouring population.

The DEPUTY-CHAIRMAN
I think the hon. Member's speech would be more suitable to the Second Reading.

§ Mr. EMMOTT
I will not trespass further upon the time of the Committee. I conclude with this comment on the speech which the hon. Member for East Fulham made to the Committee. I am anxious to make it on account of the importance of the argument that he employed. The object of the expenditure of money is that it shall have the greatest possible return. Now who are the persons best qualified to ensure the attainment of that object, that money shall be spent with the best return? I say they are not the agents of Government, whether central or local.

§ Mr. WILMOT
Return to whom?

§ Mr. EMMOTT
To those who spend it. I say that the persons best qualified to secure this object are not the agents of Government, whether central or local, but the individual men and women whose constant preoccupation throughout the whole of their lives is the expenditure of money in such a manner as to bring in the greatest return. I would say in the words of a Victorian statesman who has been already quoted to-day, that the best policy that a Government can pursue is to leave money to fructify in the pockets of the people. The argument of the hon. 406 Member for East Fulham contains no substance whatever, and his attempt to undermine the position of the hon. Member for Huddersfield (Mr. Mabane) falls to the ground.

§ Sir I. MACPHERSON
I listened very carefully to the arguments which have been put forward, but they all seem to be fallacious, and the fallacy seems to me what we used to call in the old days that of the unrelated middle. As a general proposition it is true that if you pay less money you have more to spend on other things, and from that point of view the commerce of the country is improved and more is consumed. What you need to do in the country is to create an additional amount of consuming power. I rose particularly to refer to one statement that was made. I cannot see any possible relation between the figures of unemployment and Income Tax from one year to another. In my judgment they have no reaction one on the other. I cannot understand the argument of the hon. Member for North Hammersmith (Mr. West). He said—and I took the liberty of interrupting him to ask him where he got his facts—that the Income Tax payer with an income of £2,000 a year only pays on the average 2s. in the £, or some such sum. That is not true, but that is the sort of statement that is very often made in the country, and more or less uneducated people all over the country are led to believe that people who pay direct taxation through Income Tax are not really paying what they are said to be paying. I would ask the hon. Member if he can point to a single case of a man with an income of £2,000 a year or over who is paying 3s. or less in the £. I defy him to do it, but that is the statement which has been made. I think the hon. Member said the figure was 2s., but in any case such a man has to pay what the Statute says he pays, and it is no use standing up in the House of Commons or on a public platform and saying that he is paying less, and that the ordinary payer of direct taxation is getting off by some manoeuvring on the part of the Chancellor of the Exchequer. The fact is that the man who is paying direct taxation is the most heavily taxed man in this country. I remember that when I began my political life, a quarter of a century ago, in this House, the indirect taxpayer paid 46 per cent., if I recollect 407 aright, of the total taxation, the remainder being paid by the direct taxpayer. Now the proportion is quite changed, and the direct taxpayer has to pay enormously more in proportion than the indirect taxpayer.

§ Sir A. M. SAMUEL
And he has to pay indirect taxation as well.

§ Sir I. MACPHERSON
Yes, he has to pay indirect taxation as well, so that the direct taxpayer is really doubly taxed. I rose merely to point out how dangerous it is to make a speech of that kind. It is all very well in the House of Commons, where it can be confuted, but it is wrong that speeches of that kind should be made in the country. I am challenging the hon. Member to produce a single case, whether from a blue-book or otherwise, of a man with an income of £2,000 a year or over who is charged in any way less than the amount which is due from him to the Exchequer, namely, 4s. 6d. in the £.

§ Mr. WEST
I said that, on income up to £2,000, the tax paid was 3s. in the £. I see that I was wrong. It is not 3s., but 3s. 2d. so that it is 2d. more than I said. To the extent of 2d. I apologise for my inaccuracy. If, however, the right hon. Gentleman will look at Table 38—

§ Sir I. MACPHERSON
The hon. Member's statement was, as I understood it, that the tax worked out at 2s. in the £ on an income of £2,000 or over.

§ Mr. WEST
No, up to £2,000. I think the OFFICIAL REPORT will show that was what I said—from £1,000 up to £2,000. With an income of £2,000, a married man pays at the rate of 3s. 4d. in the £, and the married man with an income of £1,950 pays at the rate of 3s.

§ Sir I. MACPHERSON
How many children are there?

§ Mr. WEST
Three children.

§ Mr. EVERARD
Is that earned income?

§ Mr. WEST
I think that, if the income is unearned, he pays a few coppers more. To the extent of 2d. I withdraw.

§ Mr. WILMOT
If the right hon. Gentleman will refer to the Chancellor of the Exchequer's financial statement, issued on the 15th April this year, he will see the effective rate of tax worked out for a large number of specimen incomes, and 408 as the figure for an income of £2,000 a year is given in every case, he will find that a married couple with three children and with an earned income of £2,000 a year pay an effective rate of 2s. 11d., so that my hon. Friend was not so far wrong after all.

§ Sir I. MACPHERSON
No doubt in certain specified cases it will be as the hon. Member says. I accept his statement, and apologise if I made a statement which I should not have made.

§ Mr. WEST
I understood the right hon. Gentleman to say that no hon. Member of this House should make such a statement, but I think he will realise the truth of the statement that I made.

§ Sir I. MACPHERSON
I am certain from what I see here, and from what the hon. Member and his colleague have said, that there are cases of that kind, but the general tone of the hon. Gentleman's speech seemed to indicate that anybody with an income of over £2,000 paid a little over 2s. in the £. That was the impression that was created. I am quite willing to admit that there are cases, and that the hon. Member has given a case—[HON. MEMBERS: "It is the average."] That is the point that I am making. It is not the average case, but is only so in certain special cases, and I say that it is wrong to create an impression that anyone with an income of £2,000 or over only pays at that rate. It happens in certain cases, where there is a family and so on, but on general principles it is wrong to make an assertion of that kind.

§ Mr. BAILEY
I entirely agree with the observation of the right hon. Gentleman the Member for Ross and Cromarty (Sir I. Macpherson) that the speech of the hon. Member for North Hammersmith (Mr. West) was, I am sure unintentionally, a very misleading speech. I understood the hon. Member to state that a man with an income of £100 a year paid taxation at the rate of 11.9 per cent while a man with an income of £1,000 was paying only at the rate of 11.2 per cent. That was the hon. Member's statement as I understood it; perhaps he will correct me if I am misinterpreting him. He said a minute or two earlier that the man with £1,000 a year paid 2s. in the £ in Income Tax, 409 which the hon. Member seemed to think too low a rate. Assuming that the figure of 2s. is right, it represents a payment of 10 per cent. of the income in Income Tax alone, so that, if the hon. Member's statement is correct, the total of the rest of the taxation paid by the man with £1,000 a year is 1.2 per cent. Is that correct?

§ Mr. WEST
The case that I gave was that the man with an income of £100 pays 11.9 per cent., while the man with an income of £1,000 only pays 11.2 per cent. I tried to make it clear, however, that these figures were figures given by the Colwyn Committee, which consisted mainly of Conservatives, and they may not be true.

§ Mr. BAILEY
Evidently the hon. Member has sufficient respect for the Colwyn Committee to quote their statements, and before any Member quotes a statement like that, he ought to satisfy himself that it is true. I will try to persuade the hon. Member that it is inaccurate—I do not like the word "untrue," because I acquit the hon. Member of any intention to mislead. His statement is that a man with an income of £1,000 a year pays Income Tax at the rate of 10 per cent., so that the rest of his taxation only amounts to 1.2 per cent. of his income. If the hon. Member believes that, he is less intelligent than I give him credit for being. The taxpayer probably owns a motor car, the licence for which costs him £12 a year, or over 1 per cent. of his income, which alone makes his taxation over 11 per cent. In addition he has to bear all the burden of indirect taxation, which presses so hardly upon the poor.

§ Mr. WEST
I would point out that the Colwyn Committee's report was published in 1926 or 1927, about eight years ago, but the figure of 2s. for the effective rate on an income of £1,000 I took from this year's Report of the Income Tax Commissioners, and that, perhaps, may account for the discrepancy.

§ Mr. BAILEY
I will leave the hon. Member to find out for himself exactly where his mistake is. He was not, however, arguing about the position in 1926. His argument was that the rich, on the present basis of Income Tax, were enjoying a great improvement in their standard of life, while the poor, owing to the 410 increase of indirect taxation, were suffering a great fall in their standard of life—that the poor were worse off and the rich were better off. What was the relevance of introducing a statement made in 1926 if it does not apply to the present day? It is clear that a statement that, while a rich man pays taxation at the rate of 11 per cent., the poor man also pays at the rate of 11 per cent., would do infinite harm if it were believed in the country by people who cannot follow these things as we can. Such a statement, made with the authority of the hon. Member might be believed, when it is clearly inaccurate.

§ Miss RATHBONE
Will the hon. Member tell us whether he does or does not accept the Colwyn Committee as the authority for these figures? The figures quoted by the hon. Member for North Hammersmith are very well known. They have been quoted half a dozen times in the House before, and I brought them with me to-day just on the chance that they might come in useful. Everyone knows that since the time of the Colwyn Committee the incidence of indirect taxation as compared with direct has increased enormously, and the discrepancy between rich and poor is greater now than it was then.

§ Mr. BAILEY
I am much interested to hear the hon. Lady's statement. Quite candidly, I have not read the Colwyn Committee's Report, and therefore I neither accept nor reject it; but I say quite categorically that, if the Committee said what the hon. Member for North Hammersmith said, the Committee were talking nonsense. I am inclined to think that the hon. Lady may be wrong, though not, of course, intentionally. I cannot believe that the Colwyn Committee would have said that, where Income Tax was being paid at the rate of 10 per cent. of the total income, the whole of the taxation was only 11.9 per cent. The point is perfectly clear. I am not arguing as to whether the distribution of wealth is right or wrong. Speaking for myself, I hope there will be to some extent a transformation of wealth. But to say, as the hon. Member said, that during the last 30 years, owing to the system of taxation, the rich have become better off and the poor worse off, is a monstrous distortion of the facts.

§ The TEMPORARY CHAIRMAN (Mr. Entwistle)
The hon. Member is now going much too wide. I must ask him to keep to the point.

§ Mr. BAILEY
I must apologise if, in replying to the arguments of hon. Members opposite, I have trespassed out of order. I hope that you will on that account excuse me. I have made it clear that there is no ground for criticising the Income Tax by saying that the Government have diminished the standard of the working classes by improving the standard of other classes. The second point in regard to which the hon. Gentleman objected to the present standard of Income Tax was, he said, that national spending was better than private spending. He evidently approves of more national spending and less private spending. I was interested in the speech of my hon. Friend the Member for Springburn (Mr. Emmott). It drew an intervention from the hon. Member for East Fulham (Mr. Wilmot), who said, I understood, that in many ways national spending was better than private spending.

§ Mr. WILMOT
The hon. Member is so inaccurate in nearly everything he has said that perhaps I may be allowed to correct him. I said "in many cases," which is a very different thing.

§ Mr. BAILEY
I accept the hon. Member's correction. Inaccuracy is getting rather catching in this House. It is not a very grave inaccuracy, after all. The hon. Member for East Fulham said that in many cases private spending was not as good as national spending. Does he think that in some cases private spending is better than national spending? If he does, it is an important admission on the part of hon. Members sitting upon those benches. The hon. Member for North Lambeth and the hon. Member will be able to settle the differences of opinion which their speeches have developed.

§ Mr. WILMOT
No one from Lambeth has spoken.

§ Mr. BAILEY
Again I was inaccurate.

§ The TEMPORARY CHAIRMAN
This is out of order, and the hon. Member has gone much beyond the scope of the Clause.

§ Mr. BAILEY
Again I must apologise to you, Mr. Entwistle. It is so difficult 412 to keep in order in answering the arguments of hon. Members opposite, but I suppose one ought not to answer their arguments. Whether they ought to have been allowed to put those arguments—

§ The TEMPORARY CHAIRMAN
The hon. Member is now reflecting upon the Chair. I was not in the Chair at the time, but it does not make the remarks of the hon. Member in order simply because some other remarks have been made. In any event, a point put by way of illustration cannot be debated at length when it is not relevant to the Clause.

§ Mr. LOGAN
Apologise again.

§ Mr. BAILEY
Certainly, I had no intention that my remarks should reflect upon the Chair, but upon hon. Members opposite. If, in fact, I did reflect upon the Chair, I exceedingly regret it. When the hon. Member for North Hammersmith—I must not be incorrect again—developed the question of the relationship between a high or a low Income Tax and employment and unemployment, he was perfectly right for once in saying that the rate of Income Tax has not necessarily any effect in itself upon unemployment or employment. You might have great unemployment with Income Tax at 4s. in the £, and a very prosperous time with Income Tax at 6s. in the £. The important point is that any sudden alteration in the channels of income definitely and adversely affects employment. If you were suddenly to raise the Income Tax from, say, its present level by 1s. 6d. you would take spending power out of the hands of certain classes who were giving employment and would not be able to put that spending power into other hands at once. That is the argument against a sudden change of Income Tax either upwards or downwards.
The cardinal mistake of hon. Members sitting upon the benches above the Gangway is that they believe in sudden changes, and it is those sudden changes which have not been prepared beforehand that destroy prosperity. It is essential that you should have stability so that the spending power of the community should not be too roughly diverted from one channel to another. It is obvious that at the present time Income Tax cannot be raised. Whatever the Socialists 413 may say about national spending being better than private spending, you cannot have national spending unless there is private earning, and you would not have private earning if you raised the Income Tax very much higher than it is at present. On the other hand, we seem to be getting on very well, and I see no reason whatever why the Income Tax should be lowered. If there is a surplus, it should be used for schemes for benefiting the poorer members of the community, and I should oppose any future Budget if I happened to be here—

§ Mr. PALING
A very necessary qualification.

§ Mr. BAILEY
A necessary qualification, or, shall I say, an optimistic forecast. I do not mind which way the hon. Member likes to have it. All who sit on these benches are genuinely concerned that the financial power of the community should be used for the benefit of all classes, and not only Income Tax payers. I resent the suggestion that hon. Members sitting on the benches opposite are the only custodians of the pockets of the working class. We who sit on these benches are anxious to see the time come—and some of us believe that the day will soon come—when the country will be able to perform great social experiments, when, we believe, the yield from Income Tax will enable us to finance these things. We believe that Income Tax will be the basis of these things in the future, provided the foundation of stability and confidence be secured. If hon. Members opposite ever came into office again that which happened before would happen again—national spending and unemployment increasing. The hon. and learned Member for East Bristol (Sir S. Cripps) has told us of the sort of crisis we should get. Just as hon. Members opposite are against this Clause standing part, those of us on these benches do not believe that at the present time taxation can be increased, nor do we believe that it should be lowered by a reduction of Income Tax. We are entirely in favour of the Clause standing as it is.