HC Deb 19 June 1935 vol 303 cc414-23

5.53 p.m.


I beg to move, in page 15, line 2, to leave out "twenty-five," and to insert "fifty."

I would suggest that it would be for the convenience of the Committee that this Amendment and the two following Amendments standing in my name and in the names of my hon. Friends might be discussed together, as they are consequential. The Chancellor of the Exchequer, in his Budget statement this year, introduced a change in the method of computing Income Tax for the benefit of the small Income Tax payer who derived his income entirely from unearned income. He said that he wished to exempt the small income derived from investments which was not larger than £125 a year and give it the same privilege as was enjoyed by an earned income of that size. At the time I ventured to point out that while nobody begrudged this concession to these very poor people there was this in it, that it introduced a new principle which, if extended, would develop into a vicious and dangerous principle. The differentiation between earned and unearned income is a very sound one based upon a very real difference. It is based on the fact that it costs the income enjoyer more to earn an earned income than it does to receive an unearned income, and therefore there is an extra allowance made in the case of earned income. But in such small incomes as these the concession is one which all of us can easily support. We feel, however, that with the growth of indirect taxation, which, in spite of the somewhat confused speeches which we have heard, is generally admitted, indirect taxation presses most hardly upon the poorest people, and consequently we think that this exemption limit should be raised. The purpose of these Amendments is to raise the limit to £150 so that those with incomes of less than £150 shall be entirely free from Income Tax whether they have earned incomes or investment incomes.

Later on we have an Amendment to improve a little further the concession to earned income in order to maintain the very proper differentiation. The Chancellor of the Exchequer also made a kind of buffer arrangement so that there should not be a steep step up as soon as the £125 limit was passed, and the second two Amendments are consequential upon the first Amendment in that they preserve the buffer arrangement so that there is not a steep rise immediately after the new limit of £150 has been passed. I urge the Committee to pass these Amendments and thus make provision for exemption from Income Tax of the very poor Income Tax payer, who is already very hardly pressed, has suffered already by losing a valuable proportion of his other allowances, pays a very heavy share, proportionately, of the new direct taxation, and is not in a position to maintain himself and his dependants and at the same time to pay any Income Tax at all.

5.58 p.m.


The hon. Gentleman opposite in moving his Amendment mentioned the words "earned and unearned income." Those words confuse me; they add to the sensation of confusion which I originally felt when I read this Clause. I rise not to debate the Amendment but to ask the Chancellor of the Exchequer to explain by paraphrase what this Clause, and especially Subsection (2), really means, so that we may know how to apply the Amendment. Last night my hon. Friend the Financial Secretary very rightly said that the Finance Bill does not aim at literary grace, but rather at exact definition. If this Clause aims at exact definition, I wonder what sort of a Clause this would be if it did not aim at exact definition. The Clause is very involved. May I ask my right hon. Friend the Chancellor of the Exchequer to be good enough to give it his attention for a moment? I am not blaming him or finding any fault with or criticising the Clause; I merely desire information. Sub-section (2) contains three conditionals. We are always asking for simplification of Income Tax, and here is a case of a new Clause being brought in which is so involved that I tried to analyse it for about two hours last night and failed to understand what Subsection (2) meant. It seems to have two meanings. In the first place there is the first conditional of "not being exempt." The second and third conditionals are: proves that his total income is less than one hundred and forty pounds, shall be entitled to have the amount of Income Tax payable in repect of his total income, and then if it would but for the provisions of this Sub-section. The whole Sub-section seems to turn on the third conditional—"would but for the provisions of this Sub-section." As I read Sub-section (2) the Clause has two meanings. One of them must be wrong. Does the rigmarole of Sub-section (2) mean that the tax payable on incomes between £125 and £140 shall not be more than one-fifth of the excess of £125? Or does it mean that the tax shall be equal to one-fifth of the excess? It is puzzling to know how the new Clause will operate, or whether it operates differently in respect of a married man and a single man. I understand, of course, that the reliefs and personal allowances must be taken into consideration, but I cannot make out whether the tax shall not be more than one-fifth or equal to one-fifth of the excess, or how earned or unearned income varies the tax payable.


On a point of Order. Are we discussing the Clause, or the first Amendment, or are we taking the three Amendments together?


We are discussing the three Amendments together.


We cannot understand how the Amendments operate until we know what the Clause means. It is difficult to know how the Clause will affect the married man. The hon. Member opposite talked about earned and unearned income of the persons to be affected. How will the Clause affect the married man as differentiated from the single man? Apparently the married man will pay no tax under the Clause, but the single man will pay some tax after deducting allowances. I may be wrong in my analysis but no doubt the Chancellor of the Exchequer will explain the Clause in order that we may know what we are talking about.

6.3 p.m.


As the Clause stands, it means that if a person has, say, £140, he will not have to pay Income Tax on more than one-fifth of the difference between that sum and £125. In other words, if the income was £140, which would be £15 above the exemption limit, he would have to pay on one-fifth of that excess. That is to say, his total Income Tax would not be more than £3—one-fifth of £15, the £15 being the difference between £125 and £140. That is a concession on past practice, and one which we are pleased to accept. A person with £150 a year or, roughly, £2 15s. a week, would have to pay £3 a year in Income Tax. Our Amendment does not propose to alter that, but to raise the limit to £200. Therefore a person with £200 a year would be charged on not more than one-fifth of the difference between £125 and £200. That is to say, he would not have to pay more than £15 a year until his income was above £200. Let me put the same principle in different figures. If our Amendment were accepted it would mean that a person whose wages were not more than £3 18s. a week would not pay more than £15 in Income Tax. I suggest that for a person who has less than £4 a week, if he pays £15 a year income Tax—


Fifteen pounds is the assessable income.


Income Tax on £15 assessable income would be very reasonable, and an improvement. I am not certain that I have properly understood the matter, but I think I am right in my understanding that the real principle is that the difference between £125 and £140 shall be increased to the difference between £140 and £200 and that not more than one-fifth of the assessable income shall be taxed.

6.7 p.m.


I think I had better begin by trying to answer my hon. Friend the Member for Farnham (Sir A. M. Samuel), and to explain what the Clause means in its present form. It is not a Clause which deals with the married taxpayer, because he is already exempt by reason of his allowances, but when you come to the single taxpayer, then the exemption limit differs according to whether his income is investment income or earned income. If it is investment income a man with a total income of £125 would be entitled to a personal allowance of £100. If his income is £100 and his personal allowance amounts to £100, then the two are equal and he is exempt, but if his income is £125 he is liable to pay on the difference between the two. On the other hand, a man who has an earned income of £125, has an earned income allowance of one-fifth, which allowance amounts to £25. That brings him down to £100, and as he has personal allowance of £100 he is exempt. Therefore, a man with an earned income of £125 is exempt, a man with an investment income of £125 is exempt up to £100. The man who has an investment income of £125 will now be exempt under the first Sub-section. I do not think my hon. Friend will have much difficulty in understanding that part of the Clause.

I think the problem is in the second Sub-section, which is a device intended to prevent what otherwise would happen, namely, that where you draw a line of this kind the moment you get over the line there is a big jump. For instance, the man who has purely investment income of £125 is exempt under Sub-section (1) but without Sub-section (2) the man who has an investment income of £126 would immediately become subject to Income Tax on the £26, and that would make a very big jump. I can illustrate the point by taking an easier example than £126. Let me take an investment income of £130. Apart from Sub-section (2), the person with an income of £130 would be liable to pay tax upon the £30, that is the excess over his personal allowance of £100. He would have to pay Income Tax on the £30 at 1s. 6d. in the pound, according to the new provisions of the Finance Bill, and that would be £2 5s. Under the provisions of Subsection (2) the tax is not to be more than one-fifth of the excess of £130 over £125, and as the excess of £130 over £125 is £5, one-fifth of that is only £1. Therefore, by the operation of Sub-section (2), instead of paying £2 5s. tax he will only pay £1. I hope that explanation makes the point clear.

The hon. Member for East Fulham (Mr. Wilmot) wishes to raise the exemption limit from £125 to £150. That would also involve an alteration in Sub-section (2) and he proposes the insertion of £200 instead of £140. In introducing his Amendment the hon. Member said that I had introduced a new principle, and that although the principle was not objectionable as long as it remained small, any extension of it would make it both vicious and dangerous. I was, therefore, astonished to hear him go on to say that he wished to extend it.


May I explain that the right hon. Gentleman is wrong there?


I would rather not be interrupted. We are anxious to get on. It really is a question of whether there is money to go a little bit further with each one of these concessions. Hon. Members opposite have taken every concession that I have made, and they want to go a little bit further. Where I have given a concession of, say, £50 they want to make it £60, and they want to raise, say, £125 to £150, and so forth. We appreciate the reasons why they put down Amendments of that kind, but we cannot afford to go further than I have done. I cannot accept the Amendment. It would cost £1,000,000 in a full year. If I were to accept the Amendment I should have to take it out of something else, and I have no doubt that I should then incur the resentment and criticism of hon. Members opposite. In the circum-

stances I must ask the Committee to reject the Amendment.


On a point of explanation, I should like to correct one statement of the right hon. Gentleman. It is not true to say that having objected to the principle proposed I have sought to extend it. If I had done so, I should seek to extend the exemption to the unearned income without making a correspondingly increased exemption for the earned income. Seeing that on a later Clause in another Amendment I have removed the widening of that principle, I think the right hon. Gentleman will admit that he was not right in what he said.

Question put, "That the word 'twenty-five' stand part of the Clause."

The Committee divided: Ayes, 244; Noes, 59.

Division No. 238.] AYES. [6.13 p.m.
Agnew, Lieut.-Com. P. G. Davidson, Rt. Hon. Sir John Hudson, Robert Spear (Southport)
Albery, Irving James Davies, Edward C. (Montgomery) Hume, Sir George Hopwood
Amery, Rt. Hon. Leopold C. M. S. Davison, Sir William Henry Hurd, Sir Percy
Anstruther-Gray, W. J. Denman, Hon. R. D. Inskip, Rt. Hon. Sir Thomas W. H.
Apsley, Lord Denville, Alfred Iveagh, Countess of
Aske, Sir Robert William Doran, Edward Jackson, Sir Henry (Wandsworth, C.)
Astbury, Lieut.-Com. Frederick Wolfe Dower, Captain A. V. G. James, Wing.-Com. A. W. H.
Astor, Maj. Hn. John J. (Kent, Dover) Drewe, Cedric Jamieson, Rt. Hon. Douglas
Atholl, Duchess of Dugdale, Captain Thomas Lionel Jennings, Roland
Balley, Eric Alfred George Eady, George H. Jones, Sir G. W. H. (Stoke New'gton)
Baillie, Sir Adrian W. M. Eastwood, John Francis Jones, Henry Haydn (Merioneth)
Baldwin, Rt. Hon. Stanley Ellis, Sir R. Geoffrey Jones, Lewis (Swansea, West)
Balniel, Lord Elmley, Viscount Kerr, Hamilton W.
Barclay-Harvey, C. M. Emmott, Charles E. G. C. Kimball, Lawrence
Beaumont, M. W. (Bucks., Aylesbury) Emrys-Evans, P. V. Kirkpatrick, William M.
Beaumont, Hon. R. E. B. (Portsm'th, C.) Erskine-Bolst, Capt. C. C. (Blackpool) Lamb, Sir Joseph Quinton
Benn, Sir Arthur Shirley Essenhigh, Reginald Clare Law, Sir Alfred
Bernays, Robert Fielden, Edward Brocklehurst Law, Richard K. (Hull, S. W.)
Blindell, James Ford, Sir Patrick J. Leech, Dr. J. W.
Boulton, W. W. Fraser, Captain Sir Ian Lees-Jones, John
Bowyer, Capt. Sir George E. W. Fremantle, Sir Francis Leighton, Major B. E. P.
Braithwaite, J. G. (Hillsborough) Fuller, Captain A. G. Lennox-Boyd, A. T.
Brass, Captain Sir William Ganzoni, Sir John Lewis, Oswald
Broadbent, Colonel John Gibson, Charles Granville Lindsay, Noel Ker
Brocklebank, C. E. R. Gledhill, Gilbert Lockwood, John C. (Hackney, C.)
Brown, Col. D. C. (N'th'l'd., Hexham) Glossop, C. W. H. Loder, Captain J. de Vere
Browne, Captain A. C. Gluckstein, Louis Halle Loftus, Pierce C.
Burghley, Lord Grattan-Doyle, Sir Nicholas Lovat-Fraser, James Alexander
Burgin, Dr. Edward Leslie Gretton, Colonel Rt. Hon. John Lumley, Captain Lawrence R.
Burnett, John George Grigg, Sir Edward Mabane, William
Campbell, Sir Edward Taswell (Brmly) Gunston, Captain D. W. MacAndrew, Lieut.-Col. Sir Charles
Campbell, Vice-Admiral G. (Burnley) Guy, J. C. Morrison MacDonald, Rt. Hon. J. R. (Seaham)
Cautley, Sir Henry S. Hacking, Rt. Hon. Douglas H. MacDonald, Malcolm (Bassetlaw)
Cayzer, Maj. Sir H. R. (Prtsmth., S.) Hamilton, Sir George (Ilord) Macdonald, Sir Murdoch (Inverness)
Cazalet, Thelma (Islington, E.) Hannon, Patrick Joseph Henry Macdonald, Capt. P. D. (I. of W.)
Chamberlain, Rt. Hon. N. (Edgbaston) Harbord, Arthur McEwen, Captain J. H. F.
Chapman, Sir Samuel (Edinburgh, S.) Haslam, Henry (Horncastle) McKie, John Hamilton
Chorlton, Alan Ernest Leofric Headlam, Lieut.-Col. Sir Cuthbert Maclay, Hon. Joseph Paton
Clayton, Sir Christopher Hellgers, Captain F. F. A. McLean, Dr. W. H. (Tradeston)
Cobb, Sir Cyril Henderson, Sir Vivian L. (Chelmsford) Macpherson, Rt. Hon. Sir Ian
Cochrane, Commander Hon. A. D. Heneage, Lieut.-Colonel Arthur P. Maitland, Adam
Cooper, A. Duff Herbert, Capt. S. (Abbey Division) Manningham-Buller, Lt.-Col. Sir M.
Cooper, T. M. (Edinburgh, W.) Hills, Major Rt. Hon. John Waller Margesson, Capt. Rt. Hon. H. D. R.
Craddock, Sir Reginald Henry Holdsworth, Herbert Martin, Thomas B.
Crookshank, Capt. H. C. (Gainsb'ro) Hore-Belisha, Rt. Hon. Leslie Mason, David M. (Edinburgh, E.)
Cross, R. H. Hornby, Frank Mason, Col. Glyn K. (Croydon, N.)
Crossley, A. C. Horsbrugh, Florence Mayhew, Lieut.-Colonel John
Cruddas, Lieut.-Colonel Bernard Howard, Tom Forrest Mellor, Sir J. S. P.
Dalkeith, Earl of Hudson, Capt. A. U. M. (Hackney, N.) Mills, Sir Frederick (Leyton, E.)
Mitchell, Harold P. (Br'tl'd & Chisw'k) Russell, Albert (Kirkcaldy) Thomas, Rt. Hon. J. H. (Derby)
Mitchell, Sir W. Lane (Streatham) Russell, Alexander West (Tynemouth) Thomas, James P. L. (Hereford)
Molson, A. Hugh Elsdale Russell, Hamer Field (Sheffield, B'tside) Thompson, Sir Luke
Morris-Jones, Dr. J. H. (Denbigh) Russell, R. J. (Eddlsbury) Thomson, Sir James D. W.
Morrison, G. A. (Scottish Univer'ties) Rutherford, Sir John Hugo (Liverp'l) Thorp, Linton Theodore
Moss, Captain H. J. Salmon, Sir Isidore Titchfield, Major the Marquess of
Munro, Patrick Salt, Edward W. Touche, Gordon Cosmo
Nation, Brigadier-General J. J. H. Samuel, Sir Arthur Michael (F'nham) Tryon, Rt. Hon. George Clement
O'Neill, Rt. Hon. Sir Hugh Sandys, Duncan Turton, Robert Hugh
Orr Ewing, I. L. Savery, Servington Wallace, Captain D. E. (Hornsey)
Peake, Osbert Shepperson, Sir Ernest W. Ward, Lt.-Col. Sir A. L. (Hull)
Pearson, William G. Simmonds, Oliver Edwin Ward, Irene Mary Bewick (Wallsend)
Peat, Charles U. Simon, Rt. Hon. Sir John Ward, Sarah Adelaide (Cannock)
Penny, Sir George Sinclair, Col. T. (Queen's Unv., Belfast) Waterhouse, Captain Charles
Percy, Lord Eustace Smiles, Lieut.-Col. Sir Walter D. Watt, Major George Steven H.
Perkins, Walter R. D. Smith, Louis W. (Sheffield, Hallam) Wayland, Sir William A.
Petherick, M. Smith, Sir Robert (Ab'd'n & K'dlne, C.) Wedderburn, Henry James Scrymgeour-
Peto, Sir Basil E. (Devon, Barnstaple) Smithers, Sir Waldron Wells, Sydney Richard
Pickthorn, K. W. M. Somervell, Sir Donald Williams, Charles (Devon, Torquay)
Pownall, Sir Assheton Somerville, Annesley A. (Windsor) Williams, Herbert G. (Croydon, S.)
Pybus, Sir John Sotheron-Estcourt, Captain T. E. Wills, Wilfrid D.
Raikes, Henry V. A. M. Spears, Brigadier-General Edward L. Wilson, Lt.-Col. Sir Arnold (Hertf'd)
Ramsay, T. B. W. (Western Isles) Spencer, Captain Richard A. Windsor-Clive, Lieut.-Colonel George
Ramsbotham, Herwald Spens, William Patrick Winterton, Rt. Hon. Earl
Ramsden, Sir Eugene Stanley, Rt. Hon. Lord (Fylde) Wise, Alfred R.
Reid, David D. (County Down) Stanley, Rt. Hon. Oliver (W'morland) Withers, Sir John James
Remer, John R. Stewart, J. Henderson (Fife, E.) Womersley, Sir Walter
Roberts, Sir Samuel (Ecclesall) Stones, James Worthington, Sir John
Ropner, Colonel L. Strickland, Captain W. F. Wragg, Herbert
Rosbotham, Sir Thomas Stuart, Lord C. Crichton-
Ross Taylor, Walter (Woodbridge) Sueter, Rcar-Admiral Sir Murray F. TELLERS FOR THE AYES
Ruggles-Brise, Colonel Sir Edward Sugden, Sir Wilfrid Hart Major Davies and Commander
Runge, Norah Cecil Templeton, William P. Southby.
Adams, D. M. (Poplar, South) Groves, Thomas E. Rathbone, Eleanor
Addison, Rt. Hon. Dr. Christopher Grundy, Thomas W. Rea, Sir Walter
Attlee, Rt. Hon. Clement R. Hamilton, Sir R. W. (Orkney & Zetl'nd) Roberts, Aled (Wrexham)
Banfield, John William Harris, Sir Percy Salter, Dr. Alfred
Buchanan, George Janner, Barnett Samuel, Rt. Hon. Sir H. (Darwen)
Cove, William G. Jenkins, Sir William Sinclair, Maj. Rt. Hn. Sir A. (C'thness)
Cripps, Sir Stafford Jones, Morgan (Caerphilly) Smith, Tom (Normanton)
Daggar, George Kirkwood, David Strauss, G. R. (Lambeth, North)
Davies, David L. (Pontypridd) Lansbury, Rt. Hon. George Thorne, William James
Dobbie, William Leonard, William Tinker, John Joseph
Edwards, Sir Charles Lunn, William West, F. R.
Evans, Capt. Ernest (Welsh Univ.) Macdonald, Gordon (Ince) White, Henry Graham
Fcot, Isaac (Cornwall, Bodmin) McEntee, Valentine L. Williams, Edward John (Ogmore)
Gardner, Benjamin Walter McGovern, John Williams, Dr. John H. (Llanelly)
George, Major G. Lloyd (Pembroke) Maclean, Neil (Glasgow, Govan) Williams, Thomas (York, Don Valley)
George, Megan A. Lloyd (Anglesea) Mainwaring, William Henry Wilmot, John
Graham, D. M. (Lanark, Hamilton) Mallalieu, Edward Lancelot Wood, Sir Murdoch McKenzie (Banff)
Greenwood, Rt. Hon. Arthur Maxton, James.
Grenfell, David Rees (Glamorgan) Milner, Major James TELLERS FOR THE NOES.
Griffith, F. Kingsley (Middlesbro', W.) Owen, Major Goronwy Mr. Paling and Mr. John.
Griffiths, George A. (Yorks, W. Riding) Pickering, Ernest H.

6.20 p.m.


I beg to move, "That the Chairman do report Progress, and ask leave to sit again."

I am moving to report Progress in order that the Chancellor of the Exchequer may let us know, if he can, how far he proposes to go to-night. It would probably be for the convenience of the Committee if he could give us this information at this stage, and it might expedite business.


I am glad to respond to the request of the hon. and learned Member, as I think it would be to the advantage of the Committee if they had some idea as to how the time can be distributed over the remaining business in the Committee stage. The main point is that we should complete the Committee stage by Monday night, and if there is an understanding in all quarters of the Committee, that we shall get the Committee stage and the new Clauses finished by Monday night, I shall be quite satisfied if we get to the bottom of page 2565 this evening, that is, the Amendment in the name of the hon. Member for South Croydon (Mr. H. Williams) dealing with residuary legacies to charitable institutions. That will, I hope, leave not more than can be completed at a convenient hour on Monday.


I am much obliged to the right hon. Gentleman, but I am afraid that we can give no promise as to Monday. If he looks at the Order Paper he will see that practically without exception the new Clauses are in the names of back benchers on his own side, not on this side. However, as far as we are concerned, we are quite prepared to co-operate and endeavour to finish the Bill on Monday night.


May I say that we entirely concur in the arrangement, and will do our best to carry it out.

Motion, by leave, withdrawn.

Clause ordered to stand part of the Bill.