§ After a full examination of many suggested alternatives, I propose to rely upon an increase in three existing taxes, the Income Tax, the Oil Duty and the Tea Duty. When the standard rate of Income Tax is already at 5s. in the pound, it is especially necessary to take steps to help to secure that we do not lay a heavier burden upon productive industry, or, at the lower end of the scale, on the smaller income. My proposal has been framed with these two urgent considerations fully in mind. I propose to increase, subject to provisions I am going to mention, the standard rate of tax by 6d., making it, therefore, 5s. 6d. In assessing the profits or gains of trade under Schedule D, there is a deduction commonly called the wear and tear allowance, which is intended to represent the diminished value by reason of wear and tear during the year of any machinery or plant used for the purposes of the trade. After the second Budget in 1931, this allowance for wear and tear was increased by Lord Snowden by 10 per cent. as a set-off in favour of industry employing plant and machinery as against an increase in the standard rate of tax then imposed. I propose to adopt the same process and to make the additional allowance 20 per cent. instead of 10 per cent. The effect will be to increase in the case of such enterprises the figure which may be deducted before arriving at taxable profits and therefore, to reduce the total upon which the tax is charged. This increase which I am making in the wear and tear allowance is roughly equivalent to the incidence of the additional 6d. on the reserves of companies engaged in industries employing plant and machinery. This, therefore, will cover the very important basic trades which give a great deal of employment, and the purpose of the concession is to avoid impeding their development. I calculate that concession will lose me £2,500,000 in the current year and £3,000,000 in a full year. I would add that I am aware that this 64 adjustment cannot be a precise one in every case, but it is so important to avoid placing undue burdens on this class of enterprise, especially at the present time, that I feel abundantly justified in giving this measure of relief.
§ At the lower end of the scale I shall make a modification the benefit of which will be directly felt by the smaller Income Taxpayer. As the Income Tax now stands, after passing the region which is free from tax owing to. allowances of different kinds, the next £135 of income is charged at one-third of the standard rate. With the standard rate at 5s., one-third is 1s. 8d., and, with the standard rate at 5s. 6d., one-third would be is. 10d. an increase of 6d. in the standard rate would, therefore, raise the charge seriously on the smaller income. I propose to keep the charge on the first £135 of taxable income at 1s. 8d. The Committee will see that that is a very valuable concession. The individual whose taxable income does not exceed £135—there are about 2,000,000 small Income Taxpayers in that position—will be unaffected by the increase in the standard rate. My other proposals will affect him. For those above that figure, there will be a modified proportion of relief which gradually diminishes as the total of taxable income rises.
§ Although the usual White Paper will contain the complete scale setting out the effect, the Committee might like me to give one or two illustrative figures at once. It will work in this way. There will be no increase of tax on earned income in the case of a single person up to £290 a year, or in the case of a married man with one child, up to £460 a year, or with,two children, up to £540 a year. The reason I do it is this. I feel that so high a rate of Income Tax, notwithstanding existing allowances, bears hardly upon the smaller Income Tax payers, and especially those with families. They got no relief when the Income Tax was last raised; they will contribute to the indirect taxes which it remains for me to define; and indeed, many of them will probably feel in a greater degree than other taxpayers the effect of the increase in the oil duty, for oil includes petrol. With these considerations in mind, I feel justified in affording the relief which I have described.
§ Mr. Lees-SmithWhat will that cost?
§ Sir J. SimonI am afraid I cannot give the figure for the moment. There is one further modification of the Income Tax which must accompany a rise in the standard rate to 5s. 6d. Income Tax under Schedule A is payable on 1st January in each year, and in the case of rented property is paid by the hand of the tenant, who deducts what he has paid from the next quarter's rent. There will be cases where Schedule A is charged at the standard rate in respect of rented property with the result that if the tenant had to pay the whole tax on 1st January, this would be more than one quarter's rent. I propose to provide that in such cases the tenant may postpone the payment of this excess for another quarter, when he may make a further deduction from rent without being out of pocket. These Income Tax proposals taken together will provide me with £22,250,000 this year and in a full year they will provide me with £26,500,000.