HC Deb 04 October 1939 vol 351 cc1991-2058

Considered in Committee.

[Sir Dennis Herbert in the Chair.]

Clauses 1 to 5 ordered to stand part of the Bill.

CLAUSE 6.—(Sugar, etc.)

Motion made, and Question proposed, "That the Clause stand part of the Bill."

4.0 p.m.

Mr. Charles Brown

As the Committee are well aware, my party has opposed the proposed increase of the Sugar Duty at every stage since it was suggested by the Chancellor of the Exchequer last Wednesday. Our hostility to the change is not less now than it has been in the past. When the Chancellor bases his case for the increase of the duty, as he does, on the doctrine that in war time every class of the community should make some sacrifice in the common cause, though we are prepared to agree with him up to a point yet we cannot follow him when he seeks to put an additional burden on the poorest people to remind them of their national obligations. They are ever conscious of their obligations without any such reminder. So far as we have been able to discover in the various statements that the Chancellor has made he has made this argument the basis for the increase in the duty. It seems to some of us like adding insult to injury to ask very poor people to pay a penny or twopence a week more when after a lifetime of hard work the social system under which they live has condemned them to poverty.

While we frankly recognise that the Chancellor had a difficult and very disagreeable task in framing the Emergency Budget, we do not think it was necessary to levy this additional impost, which will press so heavily on a very considerable number of poor people. It is not our function as an Opposition to suggest alternative methods of raising the money which will be provided by this increased Sugar Duty, and if I attempted to do so on this Clause I would speedily be called to order. Nevertheless, when we are conversant with the main facts about the distribution of the national income we assert that it would not have been diffi- cult to have procured this money by some other form of taxation. The Chancellor told us last Friday that he had had the figures worked out and that this increased duty of a penny a pound would mean an additional burden of 8s. 6d. per head of the population per annum. That will be a very grievous burden to some poor people, and particularly so in the case of old age pensioners.

I do not want to prolong this discussion because the arguments against the tax have been very well presented to the House by my right hon. Friend the Member for East Edinburgh (Mr. Pethick-Lawrence) and by many other speakers from these benches. One morning last week, when I was walking from my home to the railway. station in order to come to London, I crossed some fields where the local authority has built a number of bungalows for old people. An old lady who occupied one of the bungalows and knows me quite well came to the garden gate. The garden in front of her bungalow was gay with flowers of the autumn, dahlias, herbaceous phlox and so forth, and the garden was very well kept. She said to me, "When are you going to increase our old age pension?" I cannot argue about that question this afternoon. All I can say is that I hope the Committee will not do anything at this stage to increase a burden that already presses too heavily upon these people. Consequently our party will oppose this Clause to-day.

4.5 p.m.

Mr. Chater

The Chancellor of the Exchequer in making his Budget statement, on which he based his defence for the imposition of this additional tax on sugar, said that if the list of additions to indirect taxation stopped there, those who neither smoked nor drank nor paid Income Tax, would be making no special contribution to this emergency Budget. For my part I cannot think that that is right. On the surface it might appear that that defence was a good and legitimate one for the imposition of this additional tax, but upon closer analysis it does not appear quite so sound. First of all the Chancellor defends his tax on the ground that those who pay no Income Tax would make no contribution to this Budget. I am right in reminding him that the mere fact that people pay no Income Tax is the hallmark of their poverty, and it seems to me to be a strange argument that the Chancellor uses the evidence of the poverty of these people as a reason for putting extra taxation on their shoulders. When I come to those who neither smoke nor drink, I think that perhaps the Chancellor had in mind some of those more or less fanatical teetotal persons in the wealthy ranks of his own supporters. But if he had taken account of the masses of the population who are neither smokers nor drinkers of alcoholic stimulants, he would have realised that the vast mass of them are to be found amongst the women and children of the working-class population. Therefore it is upon the shoulders of that class of person that the increased tax is to bear most heavily.

The Chancellor of the Exchequer has adopted a rather peculiar financial strategy. I could have imagined that a burden of this character would be one which he would not place upon the shoulders of the poorest in the community until he had reached that stage of crisis in his financial arrangements that it could be no longer avoided. Instead, at the outset of the war this additional tax is imposed on the people who can least bear it. I remember visits to the homes that I know most, in my own constituency. It may not be generally realised that in places like that, in the East End of London, and in every constituency, there are thousands of homes where the family income does not average more than £2 to £3 Per week over the year. In fact in my own constituency I know hundreds of families where the weekly income averages not more than £2 a week for the whole year. Let hon. Members try to realise that that income has to sustain a father and mother and probably three children, and then let them take into account the Chancellor's calculation that his increased tax represents something like 8s. 6d. per head of the community per annum. Apply the calculation to that family of five, and it will be found that the additional tax on them is £2 3s. 6d. per annum. That is a very severe burden upon these people, representing something like an additional 10d. per week placed upon their shoulders.

I should like to put another aspect of the question. The Chancellor of the Exchequer thinks that this stratum of poverty should make its contribution to his emergency Budget. Let us suppose, for the sake of argument, that the right hon. Gentleman would forego the penny per pound increase in the cost of sugar. He would lose, perhaps, £18,000,000 of revenue in a full year. He would have to find some other source of revenue, from other classes of taxpayers, who would, however, benefit by the repeal of the additional Sugar Duty. In the average working-class home the additional cost may be 10d. a week, but in the homes of the wealthy, where sugar is used far more extensively than in the homes of the poor, the saving would be considerably greater than 10d. a week. To that extent the cost of the extra taxation that the Chancellor of the Exchequer might have to place upon that section of the community to replace the increase in the Sugar Duty would be offset by what they would save in regard to sugar. Is it wise, at the beginning of the period of sacrifice through which the nation will have to go before the war is finished, to place upon the shoulders of the very poorest of the community a burden of this kind, instead of waiting for the time when dire necessity arises and such an additional tax can no longer be avoided?

4.13 p.m.

Mr. Graham White

The test which my hon. Friends on these benches apply to the principles in the Budget is whether they are efficient instruments for the raising of the money necessary to prosecute the war and, further, whether they are just as between various sections of the community. My mind goes back to the discussion we had in July when there was unanimity of opinion in favour of doing something to make easier the lot of the old age pensioner. There was unanimous relief when the Prime Minister said that an inquiry would be held with the idea of seeing what could be done in this direction. The House would have been absolutely horrified on that occasion if they had been told that not only would nothing be done for the old age pensioners, but that something would have to be done to increase the hardship upon them. I think that feeling is shared by hon. Members in all parts of the House.

It is true that 8s. 6d. per head is, perhaps, a small thing to the majority of people, but when you are dealing with budgets where Id. or 2d. means a budgetary crisis in that particular household it is a serious matter. This in- creased cost of sugar is not the only impost. This week the price of bread has gone up one halfpenny per quartern loaf. There is another matter, which has no direct connection with the Budget because there is no increased impost upon tea. Until recently the old age pensioner has been able to get tea at Is. Iod. or 2s. a pound. We now understand that within a week or two we shall have only Government-controlled tea at 2s. 4d. a pound. There, again, there will be an impost that will fall with particular severity upon the old age pensioners and the other classes of the community to whom the hon. Members have referred.

The House would have accepted cheerfully this further impost upon sugar if they could have been given some hope or if some statement had been made, to the effect that something would be done to relieve the burden on the old age pensioners. In that case the House would have accepted this particular impost in as cheerful a spirit as they have accepted the much heavier impost. There is another objection to this particular impost, and that is—and I think it is agreed in every section of the House—that no further burden can be borne by the old age pensioners, and that if we inflict upon people a burden that is intolerable, it means that we are really inflicting an impost upon the resources of the local authorities. I am sure that no one wants to do that. This additional impost on sugar is one of the exceptions to the approval that we give to the proposals of the Budget.

4.17 p.m.

Sir Francis Fremantle

I should like to deal with a point which ought to be taken into consideration when we are discussing this Duty. It is not merely a question of an impost levied upon one particular class of the community We have to consider how hard it presses upon that class, and what is the hardship concerned. I made some remarks on this subject last Friday which were treated, I am afraid, rather lightly, especially from the benches opposite, and I should like to repeat those remarks in another form. I would ask hon. Members seriously to consider this question. This morning I received from the Food Education Society a pamphlet which was written before the war, and therefore prior to my remarks. I would like hon. Members to consider this matter from the point of view of its effect upon the health of the people. What is the hardship involved, supposing people have to cut off sugar and find some substitute? In a historical review of the question of sugar with which the pamphlet deals it is pointed out that in the days of Queen Elizabeth there was no such thing as sugar as we know it to-day, and the population got on comparatively well in those days. Certainly, so far as naval armaments were concerned they did very well. I do not, however, bring that forward as an argument, but it is a fact that until the beginning of the last century sugar was not, and could not be, a regular article in the diet of people, and they had to use other materials.

How far is sugar really useful? It is obviously useful as nutrition, but it is not absolutely essential. It is suggested, for instance, that it is particularly useful for those who have to perform feats of endurance in climbing, say, Mount Everest, but the pamphlet to which I have referred suggests that honey would be more useful. It was proved useful in the last war. I am informed that daring the last war there was a great increase in the production of honey and in its use as a substitute for sugar.

There are two points that I wish to take from speeches which were made from the opposite benches. Last Friday the hon. Member for Dartford (Mrs. Adamson) said it is the poor people, and especially the old age pensioners, who like heavily sweetened tea. I think there are many who have discovered, as the whole of the Chinese people discovered, that tea has a taste of its own which is very pleasing and which is veiled by sugar, and that we have acquired the habit of liking the sugar taste. It is possible that for those who like sweetened tea it is merely a question that they should be asked to forego a taste.

I also heard a suggestion the other day that something like half the consumption of sugar is used by manufacturers and very largely in confectionery. The hon. Member for North East Bethnal Green (Mr. Chater) rather contradicted that suggestion when he said that far larger amounts of sugar are used by the wealthier classes, who can, there fore, bear the taxation in another form. In other words, the average of 2d. a week applies more than the average to those who are wealthier, and less than the average to the old age pensioner, and go on. A large proportion of this money is spent by the working classes.

I desire to deal with this matter from a non-party and reasonable point of view. When I went out into the Lobby last Friday an hon. Friend said, "Among the evacuees in my house there was a very poor family from Bethnal Green. Thechild was crying about something and the mother gave it a penny to go out and buy sweets." That is a common practice in order to stop children crying. It did not affect the question that in the neighbourhood of my hon. Friend's house there was no shop in which to buy sweets; the practice was so common that the mother gave the child a penny to try and stop it crying. The common practice of encouraging children to eat sweets between meals and at all times is recognised by everybody to be a most pernicious habit which has an extremely bad effect upon the teeth and health, and I invite hon. Members to consult their medical friends on the subject.

Mr. MacLaren

Does the hon. Member suggest that these were the considerations running in the Chancellor's mind when he imposed the Sugar tax? If he does not suggest that, why is he wasting the time of the Committee?

Sir F. Fremantle

I only suggest that we may have other points of view from the Chancellor of the Exchequer, and the views brought forward require to be qualified in order to see whether a person can forego these things. It is surely germane to any point in the Budget. I suggest that sugar can be foregone with out any hardship. Suppose old age pensioners say they will do away entirely with sugar, what are they to have in return? They can buy an equivalent amount of cereals and other articles which are constantly being recommended by the Food Council. What we propose to do by this impost is to ask people to give up an amenity, because I suggest it is an amenity and not an essential of nutrition. To say that it is nutritious is equivalent to the argument of the brewers when they say, "Buy more beer, because it is more nutritious." Neither sugar nor beer is more essential to nutrition. There- fore, from the point of view of reason I would like hon. Members to recognise that sugar is not an essential element for nutrition, and that that argument should be left out of the present discussion.

4.25 p.m.

Dr. Edith Summerskill

I had no intention of participating in this Debate until I entered the Committee just now and heard my medical colleague on the other side forwarding certain arguments which have no scientific basis whatsoever. In fact, it shocks me to hear a medical man advancing such ridiculous arguments as those we have just heard; for instance, that this tax should be imposed in order that the poor little child should not suffer as the result of being given a penny by its mother to buy sweets, and also that it is beneficial to the old age pensioner who, Heaven knows, has very few comforts in life, to go without sugar in his or her tea.

Sir F. Fremantle

I never said that it was good for them.

Dr. Summerskill

I believe at some other time in the House the hon. Member suggested that sugar has caused a certain amount of dental caries. My dentist disagrees with that, and suggests that it is the acid-forming substances in the mouth which cause dental caries. What the hon. Gentleman who has just spoken should have told the Committee is that sugar is one of the cheapest foods which is enjoyed by the workers, and he knows that physiologically that is absolutely true. Sugar is a carbohydrate which provides warmth and energy for those people who cannot afford the more expensive foods. I ask the Committee not to listen to these arguments, which are not worthy of a member of the medical profession.

4.27 p.m.

Mr. Tomlinson

I do not wish to cross swords with the hon. Gentleman on the medical aspect, but I suggest that the Committee should remember that the substitutes which he has suggested for the people who are deprived of sugar because they cannot buy it will not fulfill the function which is suggested. For instance, you cannot make stewed fruit palatable by adding those things which he named as substitutes, neither can you make jam palatable by adding those substitutes. Whether it is made for the workers or not, economic circumstances have made it absolutely essential that they should eat jam and those foods which are sweetened with sugar, because they cannot afford anything else. It may be that if the medical profession had seen all the harm that is caused by feeding on these cheaper substitutes they should have taken the trouble to point it out before.

Sir F. Fremantle

That is what we do.

Mr. Tomlinson

The argument which my hon. Friend used last week and to day had this effect upon four hon. Members of this Committee, that as they travelled home together in the train one of his own colleagues on the opposite side bought a box of sweetened peppermints, and each member of the party as he took one ate it in memory of the hon. Member for St. Albans (Sir F. Fremantle). They did not taste any the worse for that, nor did they affect the teeth of two of the Members, at any rate, because they have passed the stage when sweets can affect them. Although we can joke about this matter and say that it is for the benefit of the people, it is imposing a real hard ship upon working-class families through out the country. There is not a working-class house in this country where children are being brought up in which sugar is not one of the principal items in the weekly budget. In fact, it affects more items in the food of the family than any other single item they purchase in the grocer's shop. When the Chancellor of the Exchequer was looking for money I think he might have chosen something which would not have had so much effect on so many people. It is the hardest imposition in the Budget. From the various ways in which it affects a working-class family I say that the percentage increase on sugar is higher than that of any other impost.

It may be that, from a medical point of view, beer is not good for us and that we should put on a penny a pint. I do not know whether beer is good for one or not. I think that is determined by whether the advertisement is written by a medical man or not. But whether it is good or not, the Government are seeking to get added revenue from beer, and there is an alternative to beer upon which a tax has not yet been placed, and that is water. There is no alternative to sugar as far as the worker is concerned. He has to have sugar or something very much inferior in order to meet the habits which he has formed not only during his lifetime but which this nation has formed since the days of Queen Elizabeth. Therefore, you cannot treat this matter as if it were something which we could do without. The worker has come to look upon sugar as essential, and it is essential in working-class homes. For that reason it should have been the last instead of the first thing upon which an imposition was made.

4.34 p.m.

The Financial Secretary to the Treasury (Captain Crookshank)

The arguments which have been advanced as to whether sugar is good or bad for people are more fitted for a general debate on an ordinary Budget and are, perhaps, not quite so relevant on the occasion of a war Budget. The Chancellor of the Exchequer and I, as well as everybody else, recognise the protests which have been evoked by the proposal, and these protests have not been confined to the Opposition Benches. But when the hon. Member for Mansfield (Mr. C. Brown) admitted that the Chancellor of the Exchequer had been faced with a difficult and disagreeable task he could not have put the position in simpler language. That is the unfortunate position in which my right hon. Friend finds himself. But when the hon. Member went on to say that this extra imposition on sugar is adding insult to injury, I think he is going a bit too far. I was struck by a remark of the hon. Member for Farnworth (Mr. Tomlinson) that this was a great hard ship on working-class families in that it was most difficult for them to face this extra tax on sugar in view of the habits they had formed. I am afraid that this Budget will have the same effect on a much wider circle than that to which the hon. Member referred, and it is part of the price which the nation has to pay.

I deprecate any argument based on averages, it is so apt to be fallacious, but it is quite true, as my right hon. Friend said on Friday, that this imposition represents 8s. 6d. per annum per head of the population. Those figures were on a pre-war basis consumption of 102 lbs. per year per head of the population. While that is a statistical fact, it does not really carry the argument very far. The commodity of sugar is likely to be rationed; whether the ration is to be on that scale I do not know, but in dealing with averages per head of population you bring in a great number of things in which sugar plays some part, such as beer, and which are not part of the problem of the imposition of a sugar duty. Therefore, it is rather fallacious to carry the argument too far. When the hon. Member for North-East Bethnal Green (Mr. Chater) said that it was unwise at the outset of the war to make this imposition he was expressing the opinion he had formed. It is an arguable proposition if you like, but, unfortunately, the war starts at the outset and the cost starts at the outset, and, therefore, it is not very helpful to say that you should not put this or that tax on at the beginning of the war.

On Friday the Chancellor of the Exchequer pointed out that it was his duty to take the decision that this contribution must be made from a body of persons in the country who are not covered already by direct taxation. From that point of view the money represents an estimated gain to the revenue of £8,500,000 this year and £18,000,000 in a full year. The Chancellor of the Exchequer is asking for a material contribution—no one denies that—to meet the extra demands which the war makes upon our financial resources. We all admit that. There is no argument about the heaviness of the burden, and particularly upon those who are on lower standards of wages and pensions. But even so, I hope that in view of the enormously difficult situation and the fact that we must raise these sums of money—the House has already accepted the general thesis upon which the Chancellor of the Exchequer bases his proposals—I hope, I say, that hon. Members, having made their protest, which was not unexpected, will let us have a Division on this point, if they are going to a Division, or else allow us to accept the protest in the very moderate way in which it has been expressed.

4.39 p.m.

Mr. Mander

I must add my protest to those which have already been made. The Financial Secretary in his reply has referred to the Chancellor of the Exchequer being in a difficult position. We know that he is in a difficult position, but we cannot help remembering the tremendous personal responsibility he has for bringing us into this position. I only want to make this one reference. I remember the Chancellor of the Exchequer when he held another office concluding his speech by saying, that whatever happened he was determined that this country should not become involved—

The Chairman

The hon. Member must surely realise that what he is now saying has nothing to do with the point under discussion.

Mr. Mander

I fully appreciate that, Sir Dennis. I did not intend to make any thing more than a passing reference to this matter. We realise now how we have become involved. My objection to the increase in this tax is that it is an attack on the strength of the nation, for sugar is absolutely essential in maintaining the people of this country in proper strength. Many people, with some difficulty perhaps, could do without beer, tobacco, and so on, but they cannot do without sugar. In my opinion, the Chancellor might as well have proposed a tax on bread, for sugar, in its way, is just as important as bread. I want to make special reference to one class of the community which I think ought not to be overlooked in connection with this tax. I am referring to the old age pensioners.

Mr. R. Morgan

I apologise for interrupting the hon. Member, but I have listened to three or four speeches about the increase in the Sugar Duty, and while I am most sympathetic towards the position of the old age pensioners, I cannot understand why hon. Members opposite and the hon. Member for East Wolverhampton (Mr. Mander) should base the whole of their remarks about the Sugar Duty on the plight of the old age pensioners. I do not suppose that the old age pensioner will be affected by a ½d. a week. There are other grounds for making out a good case for the old age pensioners without mentioning the sugar tax.

Mr. Mander

Perhaps the hon. Member for Stourbridge (Mr. R. Morgan) will allow me to develop my remarks. The words "old age pensioners" had hardly left my lips before he interrupted me. My objection is to the tax as it affects everybody, but I selected as a particular example the old age pensioners, and whether or not the hon. Member likes it, I propose to say a few words on that subject. During the last few months, and to an increasing extent towards the end of the Session, there has been tremendous pressure for an actual increase in the amount of old age pensions. There was a suggestion—

The Chairman

That is another matter to which the hon. Member may be entitled to make a passing reference, but on which we cannot have a debate.

Mr. Mander

I appreciate that, Sir Dennis. I did not intend to make more than the passing reference I was making to the subject. I was saying that a suggestion had been made that possibly there would be an increase in old age pensions, and therefore, my argument now is that instead of there being any question of an increase, the Chancellor is proposing a decrease in the amount of the old age pension. As a result of the increase in the sugar tax which is being imposed by this Clause, there will, in effect, be available to the old age pensioners a smaller amount owing to the increased prices which they will have to pay for sugar and sugar products, and in that sense, their standard of life is being reduced in respect of an essential commodity. That is one of the strongest reasons causing me to think that the tax is unwisely chosen and ought to be abandoned. There are many other things which could bear a tax far better. I would not object to an increase in land taxation, but I should be ruled out of order if I made reference to other taxes. Therefore, I will conclude by saying that, for the reasons I have given, I protest strongly against the selection of this duty for inclusion in the Finance Bill.

4.44 p.m.

Sir Henry Fildes

With regard to the increase in this tax, the point I want to make very briefly is that if we could only get a measure of supervision over the spending Departments at the present time, we could save twice the amount which the Chancellor hopes to receive from this tax. I have here a poster—

The Chairman

This is another matter to which only a passing reference is permissible.

Sir H. Fildes

I was trying to show that there is expenditure in one direction which could well be saved and which might have the effect of avoiding the necessity of a tax on sugar. May I ask you, Sir Dennis, whether you will rule me out of order if I can show a saving which could be effected and which might avoid the necessity of this tax?

The Chairman

The hon. Member may mention it, but he may not discuss it.

Sir H. Fildes

I have here a poster that was sent to a school where the children are from three to eight years old. It says: "Your courage, your cheerfulness, your resolution, will bring us victory." It was stated in the House yesterday that £44,000 had been spent on these posters. I claim that if there were appointed a committee of five Members of the House, it could save, by investigations into the spending Departments, twice the amount that will be realised by the sugar tax.

4.46 p.m.

Mr. George Griffiths

I should not have risen to speak had it not been for the speech of the hon. Member for St. Albans (Sir F. Fremantle), who has now left the Committee. I was amazed by the statements which he made this afternoon, and also by the statements he made last Friday, which I have read. When I heard him speaking this afternoon, I thought that he was a back-number of the medical profession and that he came out of Noah's Ark. He said something about Queen Elizabeth, and I wondered whether he was born in those days. He said that in the days of Queen Elizabeth, people did not bother with sugar. Nor did they bother with aeroplanes, motor cars or the wireless. When I heard him argue on such lines, I was amazed. When the hon. Member for East Wolverhamp-ton (Mr. Mander) was speaking, the hon. Member for Stourbridge (Mr. R. Morgan) interrupted to say that he had heard again and again statements about the position of the old age pensioners. Let me tell him that if he stays in the House long enough, he will hear these statements again and again and again.

Mr. R. Morgan

Nobody is more sympathetic towards the old age pensioners than I am.

Mr. Griffiths

The hon. Member for Stourbridge, in his interruption, said that the old age pensioners would be hit only to the extent of ½d. a week. Does he suggest that an old age pensioner uses only half a pound of sugar a week? If he looks into the matter, he will find that in the household where there is an old age pensioner and his wife, it will mean not less than 2d. a week.

Mr. Morgan

Perhaps I did not make myself clear. I said that the old age pensioners had a good case without mentioning the sugar tax, and that for hon. Members opposite to make their attack on the sugar tax by giving just the case of the old age pensioners was to employ the wrong tactics.

Mr. Griffiths

I can only say that if formerly the old age pensioners had a good case, then their case is twice as good now. This tax is making the 10s. a week of the old age pensioners of less value than it was before the Budget was introduced. That is the point we have advanced all the time. The hon. Member for St. Albans asked what is the good of

the old age pensioners bothering about sugar—why do they not use honey? I would point out that sugar is 4d. a lb. and honey Is. 6d. a lb. Such an argument by the hon. Member reminds me of the remark of Queen Elizabeth, or some other queen—" If the people cannot get bread, why don't they eat cake? "Then the argument has also been used that they can have their tea without sugar and that tea without sugar is more palatable and is better for them. I say that is ridiculous. When the hon. Member opposite talked about this honey business, I thought of a bit of poetry which I hope will be recorded in the OFFICIAL REPORT: God made the bee. And the bee made the honey. The pensioner pays the tax, And the Government take the money.

Question put, "That the Clause stand part of the Bill."

The Committee divided: Ayes, 201; Noes, 137.

Division No. 300.] AYES. [4.53 p.m.
Acland-Troyte, Lt.-Col. G.J. Denman, Hon. R.D. Joel, D. J. B.
Adams, S.V.T.(Leeds, W.) Donner, P. W. Kellett, Major E. O.
Albery, Sir Irving Duggan, H. J. Kerr, Colonel C. I. (Montrose)
Amery, Rt. Hon. L. C. M. S Duncan, J. A. L. Kerr, Sir John Graham (Sco'sh Univs.)
Anstruther-Gray, W. J. Dunglass, Lord Knox, Major-General Sir A. W. F.
Apsley, Lord Elliot, Rt. Hon. W. E. Lamb, Sir J. Q.
Assheton, R, Ellis, Sir G. Leech, Sir J. W.
Baillie, Sir A. W. M. Elliston, Capt. G. S. Leighton, Major B. E. P.
Baldwin-Webb, Col. J. Emery, J. F. Lewis, O.
Balfour, G. (Hampstead) Emmott, C. E. G. C. Lipson, D.L.
Beamish, Rear-Admiral T. P. H. Emrys-Evans, P. V. Little, Sir E. Graham-
Beauchamp, Sir B. C. Entwistle, Sir C. F. Little, J.
Beechman, N. A. Erskine-Hill, A. G. Llewellin, Colonel J. J.
Bennett, Sir E. N. Everard, Sir William Lindsay Locker-Lampson, Comdr. O. S.
Blair, Sir R. Fildes, Sir H. Loftus, P. C.
Blaker, Sir R. Fleming, E. L. Lucas, Major Sir J. M.
Bossom, A. C. Fox, Sir G. W. G. MacAndrew, Colonel Sir C. G.
Boulton, W. W. Fremantle, Sir F. E. McCorquodale, M. S.
Briscoe, Capt. R. G. Fyfe, D. P. M. McEwen, Capt. J. H. F.
Brocklebank, Sir Edmund George, Major G. Lloyd (Pembroke) McKie, J. H.
Brooke, H (Lewisham, W.) Gilmour, Lt.-Col. Rt. Hon. Sir J. Makins, Brigadier-General Sir Ernest
Brown, Rt. Hon. E. (Leith) Gledhill, G. Manningham-Buller, Sir M.
Brown, Brig.-Gen. H. C. (Newbury) Glyn, Major Sir R. G. C. Margesson, Capt. Rt. Hon. H. D. R.
Browne, A. C. (Belfast, W.) Goldie, N. B. Markham, S. F.
Burgin, Rt. Hon. E. L. Graham, Captain A. C. (Wirral) Mason, Lt.-Col. Hon. G. K. M.
Butcher, H. W. Greene, W. P. C. (Worcester) Maxwell, Hon. S. A.
Butler, Rt. Hon. R. A. Gretton, Col. Rt. Hon. J. Mayhew, Lt.-Col. J.
Carver, W. H. Gridley, Sir A. B. Medlicott, F.
Cary, R. A. Grimston, R. V. Mills, Sir F. (Leyton, E.)
Cayzer, Sir C. W. (City of Chester) Guest, Lieut.-Colonel H. (Drake) Mitchell, H. (Brentford and Chiswick)
Cazalet, Capt. V. A. (Chippenham) Hacking, Rt. Hon. Sir D. H. Mitchell, Sir W. Lane (Streatham)
Channon, H. Hannah, I. C. Moore, Lieut.-Col. Sir T. C. R.
Chapman, A. (Rutherglen) Hannon, Sir P. J. H. Morgan, R. H. (Worcester, Stourbridge)
Chapman, Sir S. (Edinburgh, S.) Harbord, Sir A. Morris, 0. T. (Cardiff, E.)
Chorlton, A. E. L. Hely-Hutchinson, M. R. Morrison, G. A. (Scottish Univ's.)
Christie, J. A. Heneage, Lieut.-Colonel A. P. Morrison, Rt. Hon. W. S. (Cirencester)
Cobb, Captain E. C. (Preston) Hepburn, P. G. T. Buchan- Munro, P.
Colville, Rt. Hon. John Herbert, A. P. (Oxford U.) O'Connor, Sir Terence J.
Cooper, Rt. Hn. A. Duff (W'st'r S. G'gs) Higgs, W. F. Palmer, G. E. H.
Cooper, Rt. Hn. T. M. (E'nburgh, W.) Holmes, J. S. Peake, O.
Crookshank, Capt. Rt. Hon. H. F. C. Howitt, Dr. A. B. Perkins, W. R. D.
Culverwell, C. T. Hudson, Rt. Hon. R. S. (Southport) Pickthorn, K. W. M.
Davidson, Viscountess Hume, Sir G. H. Plugge, Capt. L. F.
Davies, Major Sir G. F. (Yeovll) Hunter, T. Ponsonby, Col. C. E.
De la Bère, R. Hurd, Sir P. A. Power, Sir J. C.
Pownall, Lt.-Col. Sir Assheton Salmon, Sir I. Tasker, Sir R. I.
Procter, Major H. A. Salt, E. W. Tate, Mavis C.
Pym, L. R. Samuel, M. R. A. Touche, G. C.
Radford, E. A. Sandeman, Sir N. S. Train, Sir J.
Raikes, H. V. A. M. Sanderson, Sir F. B. Tryon, Major Rt. Hon. G. C.
Ramsay, Captain A. H. M. Sandys, E. D. Tufnell, Lieut.-Commander R. L.
Ramsbotham, Rt. Hon. H. Selley, H. R. Wallace, Capt. Rt. Hon. Euan
Ramsden, Sir E. Shaw, Major P. S. (Wavertree) Ward, Lieut.-Col. Sir A. L. (Hull)
Rankin, Sir R. Shepperson, Sir E. W. Wardlaw-Milne, Sir J. S.
Rathbone, Eleanor (English Univ's.) Simon, Rt. Hon. Sir J. A. Waterhouse, Captain C.
Rathbone, J. R. (Bodmin) Smith, Bracewell (Dulwich) Wayland, Sir W. A.
Reed, A. C. (Exeter) Smith, Sir R. W. (Aberdeen) Webbe, Sir W. Harold
Reed, Sir H. S. (Aylesbury) Smithers, Sir W. Wells, Sir Sydney
Reid, W. Allan (Derby) Somervell, Rt. Hon. Sir Donald Williams, Sir H. G. (Croydon, S.)
Remer, J. R. Somerville, Sir A. A. (Windsor) Wilson, Lt.-Col. Sir A. T. (Hitchin)
Rickards, G. W. (Skipton) Southby, Commander Sir A. R. J. Windsor-Clive, Lieut.-Colonel G.
Robinson, J. R. (Blackpool) Spens, W. P. Winterton, Rt. Hon. Earl
Rosbotham, Sir T. Stewart, J. Henderson (Fife, E.) Womersley, Sir W. J.
Rowlands, G. Storey, S. Wragg, H.
Royds, Admiral Sir P. M. R. Strauss, H. G.(Norwich) Young, A. S. L. (Partick)
Ruggles-Brise, Colonel Sir E. A. Strickland, Captain W. F.
Russell, Sir Alexander Stuart, Rt. Hon. J. (Moray and Nairn) TELLERS FOR THE AYES.—
Russell, R. J. (Eddisbury) Sueter, Rear-Admiral Sir M. F. Captain Dugdale and Major Sir
James Edmondson.
Acland, Sir R. T. D. Grenfell, D. R. Naylor, T. E.
Adams, D. M (Poplar, S.) Griffiths, G. A. (Hemsworth) Noel-Baker, P. J.
Adamson, Jennie L. (Dartford) Griffiths, J. (Llanelly) Oliver, G. H.
Adamson, W. M. Guest, Dr. L. H. (Islington, N.) Owen, Major G.
Alexander, Rt. Hon. A. V. (H'lsbr.) Hall, G. H. (Aberdare) Paling, W.
Ammon, C. G. Hall, J. H. (Whitechapel) Parker, J.
Anderson, F. (Whitehaven) Hall, W G. (Colne Valley) Parkinson, J. A.
Attlee, Rt. Hon C. R. Harvey, T. E. (Eng. Univ's.) Pearson, A.
Banfield, J. W. Hayday, A. Pethick-Lawrence, Rt. Hon. F. W.
Barr, J. Henderson, J. (Ardwick) Price, M. P.
Batey, J. Henderson, T. (Tradeston) Ridley, G.
Beaumont, H. (Batley) Hicks, E. G. Riley, B.
Bellenger, F. J. Hills, A. (Pontefract) Ritson, J.
Benson, G. Hopkin, D. Sexton, T. M.
Bevan, A. Horabin, T. L. Shinwell, E.
Broad, F. A. Isaacs, G. A. Silverman, S. S.
Brown, C. (Mansfield) Jackson, W. F. Sloan, A.
Buchanan, G. Jagger, J. Smith, Ben (Rotherhithe)
Burke, W. A. Jenkins, A. (Pontypool) Smith, E. (Stoke)
Cape, T. Jenkins, Sir W. (Neath) Smith, Rt. Hon. H. B. Lees- (K'ly)
Charleton, H. C. John, W. Smith, T. (Normanton)
Chater, D. Jones, A. C. (Shipley) Sorensen, R. W.
Cluse, W. S. Kennedy, Rt. Hon. T. Stephen, C.
Cocks, F. S. Kirkwood, D. Stewart, W. J. (H'ght'n-le-Sp'ng)
Collindridge, F. Lathan, G Stokes, R. R.
Cove, W. G. Lawson, J. J. Summerskill, Dr. Edith
Cripps, Hon. Sir Stafford Leach, W. Thorne, W.
Daggar, G. Lee, F. Thurtle, E.
Dalton, H. Leonard, W. Tinker, J. J.
Davidson, J. J. (Maryhill) Leslie, J. R. Tomlinson, G.
Davies, R. J. (Westhoughton) Lunn, W. Viant, S. P.
Davies, S. O. (Merthyr) McGhee, H. G. Walkden, A. G.
Dobbie, W. McGovern, J. Walker, J.
Dunn, E. (Rother Valley) MacLaren, A. Watkins, F. C.
Ede, J. C. Maclean, N. Watson, W. McL.
Edwards, A. (Middlesbrough E.) MacMillan, M. (Western Isles) Welsh, J. C.
Edwards, Sir C. (Bedwellty) Mainwaring, W. H. White, H. Graham
Edwards, N. (Caerphilly) Mander, G. le M. Williams, E. J. (Ogmore)
Evans, D. O. (Cardigan) Marshall, F. Williams, T. (Don Valley)
Frankel, D. Mathers, G. Wilmot, John
Gallacher, W. Maxton, J. Wilson, C. H. (Attercliffe)
Gardner, B. W. Messer, F. Woods, G. S. (Finsbury)
Garro Jones, G. M. Milner, Major J. Young, Sir R. (Newton)
Gibson, R. (Greenock) Montague, F.
Graham, D. M. (Hamilton) Morrison, Rt. Hon. H. (Hackney, S.)
Green, W. H. (Deptford) Morrison, R. C. (Tottenham, N.) TELLERS FOR THE NOES.—
Greenwood, Rt. Hon. A. Nathan, Colonel H. L. Mr. Whiteley and Mr. Groves.

Question, "That the Clause stand part of the Bill," put, and agreed to.

CLAUSE 7 —(Increase in standard rate.)Motion made, and question proposed, "That the clause stand part f the bill."

5.1 p.m


do not rise to oppose this Clause, which we have already debated at some length in our eariler proceeding on this Measure, but I do rise i n order to ask the Chancellor of the Exchequerhich I think will incure to the benfit, not only of member of this committ, but of ordinbary citizens, bankers, and others throughout the country who are not at present very clear as to precisely what the position will be with regard to certain charges that come to be made under this enactment. The words of the Clause are rather unusual, because instead of simply charging the Income Tax rate for the year, they first of all talk of the Income Tax rate for the first quarter, then for the three remaining quarters, and then they average it out, and there is a further explanation in the Schedule, which has to be read in conjunction with the Clause. There are certain cases where, I think, there may be some confusion in the public mind, and I would ask the Chancellor to make an explanation of those cases and of what the results to the taxpayers will be. With regard to several of them, at any rate, I think I know what the answer will be, but it is very important that the Chancellor should clarify the matter in a straightforward official statement about which there can be no doubt.

Let me come, first of all, to the case of land under Schedule A. The occupier pays the tax generally in the first in stance and then deducts it from the rent that he pays to his landlord, and quite clearly a question arises where the property has changed hands during the year. It may have changed hands before the end of the first quarter of the year, between the end of the first quarter and the announcement by the Chancellor a few days ago, or since his statement and before the end of the financial year; and I think it would be to the advantage of this Committee and of the public outside that the Chancellor should make it perfectly plain what the position will be in the case of a property changing hands and, therefore, when the ultimate payment of Schedule A Income Tax comes to fall upon the property owner. That case will be fairly uncommon and, I think, admits of a perfectly simple explanation, but some more complicated cases arise in the case of stocks and shares where the tax is deducted from the dividend at the source.

There are two cases that I want, in particular, to put to the Chancellor in this respect. Stock is transferred from one owner to another at some period in the course of the year and presumably before the Chancellor's announcement. If the stock was bought and sold after the announcement obviously any provision as to deduction of the tax at the source would be reflected in the price which the purchaser would have to pay. But in the case where the transaction is already complete, presumably the whole burden will fall on the purchaser. I shall be glad if the right hon. Gentleman will explain exactly how that will work. Finally, I would like him to say a word or two in regard to the case of dividends which are paid on 1st October and either half-yearly on 1st April and 1st October, as in some cases, quarterly on 1st April, 1st July, 1st October, and 1st January. Perhaps he will be kind enough to say a few words explaining the precise operation of this tax in the case of dividends of that kind, and what will be the duty of bankers to their clients with regard to deduction of tax in those cases.

5.7 p.m.

Mr. John Wilmot

Perhaps I may take this opportunity of asking the Chancellor of the Exchequer to deal with yet another point. A question has been raised by correspondence as to the effects of a decision in respect of Schedule A Income Tax which was given by the Special Commissioners. It is said that the effect of the decision is to legalise a very widely developed form of evasion. It is said that where premises are unoccupied and, therefore, not liable to rates, the landlord escapes payment of tax on the rent that he receives, because the premises are unoccupied. The right hon. Gentleman will appreciate that in the present conditions, when a very large number of people have evacuated their premises and in many cases removed their stock and furniture, they are still under a contractual liability to pay the rent to the landlord, and it is said that landlords are receiving their rent but not paying their tax because, technically, the premises are unoccupied and, therefore, free of rates. If that be so, it seems to me that there is a leak there that is crying out to be stopped.

5.8 p.m.

The Chancellor of the Exchequer (Sir John Simon)

In reply to the hon. Member for Kennington (Mr. Wilmot), who, if I may say so has stated his case with admirable clearness, I will say that I will look into his point. I should not like to answer offhand on what is evidently a rather technical matter. The only point on which I am not quite clear is whether the suggestion of the hon. Gentleman is that it is the avoidance of rates or of Schedule A.

Mr. Wilmot

Schedule A.

Sir J. Simon

The hon. Member happened to use the word "rates" in almost his final sentence. As regards the matter put to me by the right hon. Member for East Edinburgh (Mr. Pethick-Lawrence), I agree with him that it is well that a statement should be made with such authority as I possess. It is eminently desirable that a clear statement should be made, and I can only say that I shall do my best to give it, because it is rather a complicated matter. First of all, as regards the general effect of Clause 7 of the Bill, it is true, as the right hon. Gentleman said, that the early part of the Clause is drawn so that it emphasises the fact that in one sense we start the fiscal year with a first quarter carrying a standard rate of 5s. 6d. and follow that up by the three remaining quarters carrying a standard rate at 7s. 6d. While that is so, as the right hon. Gentleman said, the Sub-section which follows requires that these figures shall be averaged, and really for all purposes of charge the rate this year is 7s. and is spread equally over the year. Hon. Members will appreciate that we are bound to have for the purposes of working out the charge a figure which is for the year, whatever the figure may be. Therefore, the demand note will be worked out at that figure.

The right hon. Gentleman put to me a number of questions as to the way this will work out, first as regards Schedule A. In the Finance Act some little time ago I inserted a provision which made it possible for tenants who pay Schedule A on 1st January to confine themselves to paying as much as they would deduct from their quarter's rent, and the balance was disposed of at a later period. That is merely a matter of convenience of payment. I apprehended that the position was quite clear as between the normal owner of a property and a purchaser who acquired it during the year. Ordinarily speaking, I imagine that the contract of sale will make provision for the apportionment of Schedule A, because, obviously, it will be natural for the tax to be borne down to a particular moment by the party who had an interest in the property to that moment and to be borne by the other party who was acquiring it from the time when the transfer was effective. A well drawn contract might even envisage the possibility of the rate of tax changing during the year. In that event it would merely be a question of adjusting the 7s. according to the broken period of the year. In a case in which the change has not been contemplated or provided for it is the purchaser who must take the risk. He cannot turn round on the man who sold the property when the Income Tax was 5s. 6d. and say, "It turns out that the property I acquired two months ago has to bear Income Tax at 7s.; please make a contribution to me in respect of the increase." The purchaser must take the risk, just as he can also take advantage of the rate of Income Tax going down.

Now comes what I agree is the commoner case which affects more people, which has to do with the payment of dividends or interest on shares or other securities which carry an annual payment of some kind. On that it is important that my statement should be exactly clear and right. I have, therefore, had put down for me what I believe to be an accurate statement, and I will repeat it as I have it before me. The increase in the standard rate to 7s. in the £, although applying to the whole of the year 1939-40, does not become legally operative until the date of the passing of the Finance Act. Until that date, therefore, the tax will in strictness continue to be deductible at the 5s. 6d. rate; but as the rate of 7s. applies to the whole year adjustment will, of course, be necessary to make good any under-deductions of tax at the 5s. 6d. rate. The Sixth Schedule to the Bill contains the provisions relating to this adjustment.

In order to reduce as far as possible the necessity for subsequent adjustment, it may be found convenient to deduct at the 7s. rate before the Bill becomes law. There may be some enterprises which would like to do it to-day or to-morrow; that is really a matter between the payer and the recipient, but it will be observed in Sub-section (3) of this Clause that I propose that we should give full validity to deductions that are made at the 7s. rate before the passing of the Act. That is to say, that, if it was thought to be a matter of business convenience to deduct 7s. now, Sub-section (3) will say that that deduction was all right. That is to save people unnecessary trouble. Hon. Members will see in Sub-section (3) a reference to 1st November, 1939. The object is to validate deductions at the 5s. 6d. rate, even although they were made after the passing of the Act, if in fact they are made before 1st November. That is because a company may have printed its dividend warrants and is ready to issue them, and it would put people to unnecessary trouble if the lot were scrapped and they were required to print new ones. Though there will have to be an adjustment, it may be more convenient for them to deduct at the 5s. 6d. rate after the Royal Assent has been given as long as they do it before 1st November.

The payments in which adjustment will be necessary fall into two classes. I put aside for a moment, as being in neither of these classes, the case of the man who is an ordinary shareholder in a company and the company is declaring such dividends as it thinks proper in general meeting on its ordinary shares. The ordinary shareholder has no right to claim a definite rate of interest. He takes what the general meeting decides, and that is a different case. I am speaking of the two classes of case in which a particular payment is obligatory. The first class consists of payments that are not made out of profits charged to tax. The best example of that is interest on Government stock. In these cases the hand that pays makes a deduction as it pays which Is governed by the prevailing rate of tax. The arrangements for this class are that paying agents are to recover the under-deduction, that is, the difference between 5s. 6d. and 7s., from subsequent payments made before 1st November, 1940. The paying agents will account to the Revenue in each case for the additional tax. The consequence will be that the individual who buys that particular form of security will buy it knowing that within the next 12 months the dividend is not only going to bear the prevailing rate of Income Tax but also that he will have to account for what has been the under-subtraction on the previous occasion, and that will, of course, make the stock less valuable. Any under-deduction not so recoverable will be chargeable by direct assessment, but I do not believe there will be many such cases. That is a case where the deduction is being made in respect of payments that are not made out of profits charged to tax.

Mr. Pethick-Lawrence

I am afraid the right hon. Gentleman has not made it perfectly clear to my mind. Possibly he could give us an illustration. In an ordinary case something of the same problem arises when the Chancellor raises the rate of Income Tax on or about the 30th April. There are payments made on the 1st May and they go out with Income Tax deducted at the old level. Then the increased tax comes into effect, and what happens is that on the next payment of dividend, whether quarterly or half-yearly, the back amount which is due is added to the deduction then to be made. As I understand the Chancellor, the same principle will apply in the present case; but I imagined, before the Chancellor made his explanation, that the deduction would be made on the payment on the next instalment, or, possibly, if there were two more quarters' payments to be made, that it would be deducted in part from each. Do I really understand from him that what has not been paid up to date will be spread over four quarters or two halves, and that the deductions will be made not merely in the present financial year, but carried right forward up to 1st November, 1940?

Sir J. Simon

I am sorry that I did not make it clear. Let us leave out of consideration for the moment dividends on ordinary shares.

Mr. Pethick-Lawrence

I am talking of Government stocks.

Sir J. Simon

And I am talking of Government stocks, too—of any payments made out of profits not charged to tax. As the right hon. Gentleman has correctly stated, the rise in the rate of Income Tax will have this result, that in the present fiscal year there will be cases where insufficient tax has been deducted. The question is, "How are you going to put that right?" and the answer is, that it will be put right on the next payment of interest. The only reason why I mentioned 1st November, 1940, was because it was an extreme case, it gives me the whole 12 months. There will be some cases in which the payments are made quarterly and other cases half-yearly. The proposal is that the amount of tax which has been under-deducted shall be added to the deduction which will be made next time, so that the deduction next time will represent the amount of the prevailing rate of Income Tax and the amount previously under-deducted.

Mr. Pethick-Lawrence

I now under stand the Chancellor to mean this, that where there is still one payment to be made in the course of the present financial year the part that has not been deducted already will be deducted in the final payment made before 5th April, 1940. The whole matter will be cleared up in that case within the financial year. In the rather exceptional case where there is no further payment to be made in the present financial year—there will only be few such cases—the arrears will be carried forward to the next payment.

Sir J. Simon

That, I think, is quite correct. Where there has been in the recent past what turns out to be an under-deduction, that will at the first opportunity be corrected by adding the amount to the amount which will fall due for deduction then. I think the right hon. Gentleman and I have sifted this clearly. So far, I am limiting myself to cases where payments are not made out of profits charged to tax, but I must make a statement on what happens in cases where payments are made out of taxed profits, which is a case that interests a great many more people.

Mr. G. Griffiths

Suppose a fellow has got 200 "quid" in corporation stock and Income Tax was deducted at 5s. 6d. yesterday morning. When it comes to 1st April next, the deduction will be at the rate of 8s. 6d. instead of 5s. 6d.?

Sir J. Simon

I am not sure that the particular instance which the hon. Member gives is a good one. I am trying to put this thing in order. I was confining myself to the case where there is a fixed rate of interest to be paid and where it is paid out of taxed profits. Obvious examples would be preference dividends, debenture interest and ground rents. In those cases, again, it is really a question of adjustment between the payer, who, of course, will be charged 7s. Income Tax on the fund out of which the payment is made, and the recipient, who is a person who up to the present has re- ceived rather more than he would have received if the 7s. rate of tax had been known to prevail. In a case like that the man who has paid out rather too much says, "Here is what you are entitled to on this debenture, less Income Tax at 5s. 6d. in the £. Now, bless me, it turns out that I ought to have deducted 7s." He must be entitled to deduct it; but he cannot deduct it in reference to the past, and consequently the payer will be entitled to recover the under-deductions for subsequent payments of interest, etc., or, if there is no subsequent payment of interest, to treat it as a debt from the recipient, and it will be a single operation.

For the purpose of completeness, and because of what the hon. Member for Hemsworth (Mr. G. Griffiths) put to me, I must add that what I have been saying has nothing to do with the payment of dividends on ordinary shares. I have been dealing with cases where there is an obligation to pay, whether out of taxed funds or otherwise, a certain rate of interest to the person who holds the security. What happens in the case of ordinary shares is quite different. In the case of ordinary shares the company itself suffers Income Tax and pays it, and then is entitled to make a deduction from the dividend which it has declared in favour of the ordinary shareholders. If the company has already declared a dividend of, say, 5 percent., and has sent out its dividend warrants to the ordinary share holders, deducting 5s. 6d. Income Tax. so that the ordinary shareholder instead of getting £1 is getting £1 less 5s. 6d., there is nothing that the company has got to do now to get any more money out of the ordinary shareholder, because the Income Tax is paid by the company. It is not paid by the ordinary shareholder at all. All that has happened as between the company and the ordinary shareholder is that the company has decided to distribute in the form of dividend rather more, perhaps, than it otherwise would have done, because it anticipated that it would have to find only 5s. 6d. in the £on its profits, whereas it will have to find 7s. on its profits. That really is not therefore the kind of case in which the difficulty arises. The ordinary shareholder has received his dividend from the company, and good luck to him. He has got it and nobody will seek to take it away from him.

Colonel Nathan

Perhaps it will be as well if we can clarify this point. The general principle on which companies deduct tax is that they recover from the ordinary shareholder and from the recipient of the distributed profits the tax which they are paying upon their profits. The company, of course, pays tax on the whole year at 7s. If an interim dividend were paid by company on, let us say, 1st May, within the present financial year and with a deduction of 5s. 6d. in the £ and a further and final dividend on, let us say, 1st November, with a deduction of 7s. in the £, the company would be liable to pay tax of 7s. on the whole of its profits, including, of course, those distributed, and would only have recovered in respect of the interim dividend, 5s. 6d. To that extent, I think the Chancellor has indicated that a company would be damnified by the increase.

Sir J. Simon

By having been too generous.

Colonel Nathan

No, not too generous, but by not fully anticipating the future. Is not this the position—and I put it to the Chancellor? When the individual taxpayer comes to make his return of total income he will include in his total income both the interim dividend and the final dividend, and he will then be assessed to tax—anyhow, to Surtax—on the whole of that income, included in, perhaps, a larger income; he will also be assessed to tax on any income which has not borne, or has not fully borne, tax at the source. Will not the result therefore be as the law stands at present that, despite the provisions of the Bill, the company will suffer tax at 7s. on the whole of its profits, including the whole of its distributed profits? The taxpayer will have paid a full rate of 7s. on the final dividend paid in November and will yet be liable to pay, on direct assessment on making his return of total income, the difference between 5s. 6d. and 7s. on the interim dividend paid in May; with the result that the company will have paid 7s. on the whole of its profits and the taxpayer will equally have paid 7s. on the whole of his dividend, but on part of it, the interim dividend, the Government will have received their tax. Is not that the position?

Sir J. Simon

The hon. and gallant Member has stated the point with admirable clearness, and almost to the last minute as I understand the matter I agreed with him, but then I think he went wrong. I am glad he is wrong because, as he suggested, it would have been a hard case. I had this point in mind but I had internally resolved not to try to explain it because it is not an easy thing to explain. Nevertheless, here we are up to the neck in it, so I will do my best to explain it. It only complicates the matter to speak of a dividend paid in two bits and an interim dividend. Of course, what has to be done after the higher rate of duty is known is plain to us all. I will assume for the purpose of convenience that a company, before the rate was known to be 7s., this year declared, on its ordinary shares, a 5 percent. dividend. I will assume that there is somebody, X, who has £100 in ordinary shares in the company. If there were no such thing as Income Tax no doubt that ordinary shareholder would get £5, but he would not have got £5, even in days when there was a 5s. 6d. Income Tax. His dividend warrant was actually made out for £5 less five times 5s. 6d., which I think is £1 7s. 6d. [An Hon. Member: "Correct."] Yes, it is a very dangerous thing for anyone to try to do these calculations while on his feet. If we deduct £1 7s. 6d. from £5 we see that he got a net sum of £3 12s. 6d.

The question which the hon. and gallant Gentleman put, and it is quite an important one, was, is that ordinary shareholder who has received £3 12s. 6d. to be damnified in some way because, before the fiscal year is out, 7s. instead of 5s. 6d. becomes the rate of tax for the year? Anyone can see what happens to the company. The company thought that it could declare a 5 per cent. dividend, having suffered the 5s. 6d. Income Tax on its profits, and that it could still be regarded as carrying on prudently. As it happens to turn out, the company undoubtedly will have to make good Income Tax on its profits, before it distributes them, at the rate of 7s. There is no doubt whatever about that, but has that any reflex action upon the ordinary shareholder who has received the dividend warrant, in the case of equity shares, of £3 12s. 6d.? It might be supposed that it could have an adverse effect on him either because he is a man with a total income so small as to warrant him in making a claim for relief or because he is one of those fortunate persons with an income so big that it may be liable for Surtax.

What the law provides at present as a way out is that the shareholder who receives that £3 12s. 6d. will be treated as though that was the amount he had received after tax at 7s. in the £ had been deducted. In other words, he will be treated as though the dividend that was received was not a dividend giving him £5 but giving him a rather larger sum from which you could deduct the 7s. and still leave him with £3 12s. 6d.

Colonel Nathan

For Surtax, will the income be grossed up at 7s. or at 5s. 6d.?

Sir J. Simon

I am not sure that I understand the hon. and gallant Gentleman's question, but the answer is that it will be at 7s. I have tried to make plain what happens on this particular point. The calculations of the hon. and gallant Gentleman went a little wrong—which is not at all striking—and I have done my best to state these complicated things. They are bound to be complicated. What I design to do—I think the Committee generally will think this is right—is to ask the Inland Revenue to prepare a very short paper which will state as clearly as it can be stated how this arrangement works. I make the announcement now. This paper will be available gratis to any body who likes to ask for it and he will be able to study it for himself. He may be the secretary of a company or any body else.

I will say this in conclusion: Although this matter is worked out in a complicated way it is the only way in which it could have been done in the case of an increase of tax during the financial year. I think the right hon. Gentleman opposite will recall that it was done in connection with the crisis Budget of 1931. Mr. Snowden had to make these arrangements and therefore we have the knowledge and experience that it can work quite reasonably. I am sorry for the complication, but it has all been thought out with very great care. I do not think there is a weak or uncertain point in it. If the Inland Revenue can issue a pamphlet in which perhaps one or two illustrations are provided, then anybody, secretary of a company, millionaire or anybody else, will be able to have the information. I apologise for taking up so much of the time of the Committee.

Mr. Lathan

Will it be competent for a company to add to the Income Tax deducted from the final dividend the balance which is actually payable on the interim dividend, and has not that previously been done?

Sir J. Simon

The distinction is between the ordinary shares and fixed charges like the interest on debentures. In the case of the interest on debenture or preference shares, where there is a fixed interest to be paid, what the hon. Gentleman has just suggested certainly has been done and is a very useful thing to do. The real distinction is that the ordinary or equity shareholders have no contractual rights to any dividend but get what the company declares in general meeting. If it turns out that that declaration is a more severe operation for the company than the company expected, that is a matter which the company will meet.

5.41 p.m.

Mr. Pethick-Lawrence

There is one point which the Chancellor did not answer, but on which, I think, the answer is not in doubt. Where the stock has changed hands in the course of the year I think it is clear that the purchaser must bear the burden. In that case he will pay not merely the 7s. as owner of the share, but also, out of his own pocket, that part of the burden which ought to have fallen on the seller but which the seller has not borne. He will to that extent be unfairly dealt with, because the transaction took place before there was any expectation of so large a change in the tax. But I think the Chancellor will probably say that that is the correct result, and I do not see anything that can be done.

Sir J. Simon

I will only say that if the circumstances had been such that the Chancellor had reduced the amount the purchaser would have been in a position to congratulate himself.

543 p.m.

Mr. George Balfour

I was glad to hear the lucid explanation of my right hon. Friend the Chancellor. I had occasion in the last few days to deal with several cases relating to a large number of warrants. Certain warrants were due for payment on 30th September. A large number had been distributed to the bankers, and a large number remained in the company's offices—as difficult a case as you could imagine. There was no alternative but to allow the warrants with the bankers to be paid out. The warrants in the company's office were also posted—all with tax deducted at the old rate of 5s. 6d.; but we took the pre caution of putting a label on to say that Is. 6d. would be deductable from the amount due on the next dividend warrant. We also sent a notice to all stockholders who received their warrants from the bankers calling attention to the fact that the difference in tax, namely, Is. 6d., would be deducted from the next payment, so that they would not be surprised or bewildered when the next payment became due. In another case I had to deal with warrants going out in a few days' time on ordinary shares. In this case, we held the warrants and issued warrants bearing the full tax deduction.

5.44 p.m.

Mr. J. Wilmot

I should like to add my thanks for the very lucid explanation that the Chancellor has given us. But in drawing the line between debenture interest on the one hand and ordinary shares on the other, he will appreciate that debenture shares are not in the same category as debenture interest, and that a 5 percent. preference share may allow a dividend of only 3 percent. this year and perhaps nothing at all next year. Therefore, the procedure that he has outlined in regard to preference shares will have to be modified on the lines of the ordinary shares procedure. I shall be glad if the right hon. Gentleman will deal with that point.

5.45 p.m.

Mr. Tomlinson

The point I am going to raise does not come into the realm of high finance. I want to ask a question about the little man who has a mortgage of, say, £250 taken out at 6 per cent. less tax. He pays interest monthly, and deducts from the individual from whom the money has been borrowed the amount of tax. Up to this month he has been paying his interest monthly less 5s. 6d. I understand that when he pays next month he will pay 7s. It is important from the small man's point of view if, having deducted that tax, the individual from whom he has borrowed is not entitled to pay Income Tax, and then he cannot recover it. I am concerned about the little chap who finds it difficult to pay the first time.

Sir J. Simon

I am glad the hon. Member has raised the point. We are all concerned about the little chap as well as the big chap. The answer is that on the next payment of interest the deduction must be at the higher rate, and the deduction must also include what was under-deducted at the earlier part of the year. In a case like that paying to the lender is really deducting at the source the right rate of taxation. It is no fault of his that he was paying short of 7s., because nobody knew that it was to be 7s. It is his business to deduct now that he does know, what was not deducted before. If the recipient is a man of small means of course he will be able to make his application for reduction of the rate finally.

5.47 p.m.

Mr. Ede

I would like to refer to the point which was mentioned by my hon. Friend in regard to the possibility of certain persons escaping the payment of Income Tax, under Schedule A, on rents they have actually received. As I understand, the reason why rates were referred to by my hon. Friend is that the Special Commissioners base their decision in these cases on the fact that where no rates have been actually paid no Income Tax would have to be paid. It would appear that this decision was illogical. Because there is now no beneficial occupation of the premises, the tenant escapes paying rates. That is the law. It may have to be varied. But the landlord has received benefit in full, although the premises were unoccupied. There seems no reason why he should escape Income Tax on money received. If the Chancellor finds that the case as stated is correct, will he on Report stage take the necessary steps to put the matter right, or may we be assured that in the next annual Finance Bill steps will be taken to prevent tax evasion which night be on a very comprehensive scale.

Sir J. Simon

I will take note of that point. I will read in the Official Re-port what the hon. Member and his hon. Friend the Member for Kennington (Mr. Wilmot) have said. Income Tax, under Schedule A, is a payment made to the State, not indeed by the hand of the landlord but by the hand of the tenant, but it is borne by the landlord, because there is a deduction from rent to meet it. If the tenant who is an occupier paying rent deducts on 1st January from the quarter's rent the Schedule A taxation and the landlord bears that deduction, I do not think it can be the case that the landlord, by any subsequent deduction, can get out of that payment. On the other hand, if it is a rating question—

Mr. Ede

It is not a rating question.

Sir J. Simon

Then I assume that we could not have explained it to one another across the Table. I will look at it and see whether anything can properly be done later on if necessary.

Clause 8 ordered to stand part of the Bill.

CLAUSE 9. — (Alteration of certain allowances.)

5.51 p.m.

Mr. Watkins

I beg to move, in page 10, line 35, to leave out Sub-section (3). This is the Clause which deals with the children's allowance by reducing it from £60 to £50, and it is with that matter that this Amendment is concerned. I realise that this is a war emergency Budget, and that money has to be found, but I hope to be able to show that this alteration will create hardship and difficulty, and that it has an element of unfairness about it. The provision to alter the children's allowance discriminates against one section of the taxpaying community and creates hardship for that reason. I quite understand that the Income Tax changes are designed to secure a large sum of money—in this instance £107,000,000—and if that money were fairly collected it ought to mean, roughly, that every Income Tax payer would pay approximately the same percentage increase on the amount of Income Tax that was being paid in the Budget of April of this year. We are right in assuming that the taxable income, as laid down by the earlier Budget, was a fair and reasonable one, and that the relationship of each different section of the community was right and fair. If additional money is required from the Income Tax paying population, it ought to be secured by everyone paying 25 per cent. or 50 percent. more, or whatever the percentage might be, in order to raise the amount of money which the Chancellor of the Exchequer desires. Generally speaking, the provisions of the Finance Bill work out somewhat along these lines, with one or two glaring exceptions which are created by the alterations in the children's allowance and in other allowances.

The children's allowance is a special benefit and its decrease will be especially hard on the professional, technical and administrative section of the workers. Undoubtedly they will be hard put to it to find the money which this alteration will involve. These people will pay all the other taxes provided in the Finance Bill; they will bear their share of the increased Sugar Duty, Tobacco Duty and alcohol duties, and they will pay the increased amounts which are due to the alteration in the increase of the standard rate from 5s. 6d. to 7s. 6d. They will pay all these amounts in common with everyone else, but, in addition, they will be required to pay extra because of the alteration in the children's allowance. The Chancellor of the Exchequer has gone along the different sections of the Income Tax paying population and has selected one class to bear a disproportionate share of the money provided for by the Finance Bill.

When this matter was discussed on the Second Reading the Chancellor of the Exchequer gave a history of the children's allowance, indicating how it had risen from a modest figure to a high figure, received a set-back in 1931, and was restored again to £60 in 1936. That figure was generally accepted as being right and proper. No argument can be levelled against my Amendment on the score that the man who has two or three children is paying less Income Tax than he ought to pay, or that his income was not taxed on the standard that was generally agreed as being right and fair. When the Chancellor of the Exchequer replied to some of the protests that had arisen from different parts of the House about the decrease in the children's allowance he invited us to study the White Paper which deals with the operations of the provisions regarding Income Tax. This I have done. Earlier this afternoon the Financial Secretary stated that he deprecated arguments based upon averages. I am not going to base my argument on averages but upon individual cases.

My case is that men with children are being unfairly discriminated against by this Finance Bill. They are being selected for unfair treatment because of the alteration in the allowance figure. Generally speaking, all Income Tax payers will pay something under 1oo percent. more Income Tax in 1940-41 than under the old Budget arrangements. Take single persons in receipt of £400 a year—for every 20s. they paid under the old provisions, they will be required to pay 32s. under the new provisions. Those in receipt of £500 will have the payment increased from 20s. to 31s., those in receipt of £600 from 20s. to 30s., those in receipt of £1,000 from 20s. to 29s., and those in receipt of £10,000 a year from 20s. to 25s. I ask the Committee to bear these comparisons in mind. If one takes married Income Tax payers without children, the amount to be paid by persons in receipt of £500 a year is increased from 20s, to 36s., those in receipt of 600 from 20s. to 33s., those in receipt of £1,000 from 20s. to 30s., and those in receipt of £10,000 from 20s. to 25s. No one of these classes will pay more than about 60 percent increase on the amount of tax they were called upon to pay under the old provisions. But when you come to the married man with a family, even with one child, receiving £400 a year, for every £1 that he paid under the old provisions, he will now be required to pay 65s. The married man with one child with an income of £500, for every £1 paid under the old Budget arrangements, will now be required to pay 48s. There fore, there is an enormous disparity between the treatment given to single tax payers and to taxpayers without children. That disparity grows with the number of children in the family. A married man with two children earning £400 a year will be required to pay seven times as much Income Tax. I am taking these figures from the White Paper, and I do not think they can be challenged. A man with £500 with two children, for every £1 that he pays will be required to pay 66s. 8d.

This disproportionate increase seems to me to be a penalising of the family man. It arises partly from the alteration in the marriage allowance, but more particularly from the alteration of the children's allowance. I am asking that this shall be reviewed and that this hardship and unfairness shall not be inflicted on this relatively small section of the community. I believe that the total value of the con- cession for which I am asking is only between £2,000,000 and £3,000,000, no very large figure, and the range of people affected are salaried workers, professional, technical, administrative and supervisory people, Government and local government officials, most of them having young children, most of them being young or young middle-aged people. They are buying houses, on which they are committed to annual payments. They are educating their children, and the fees will have to be paid or the education will suffer. They have to keep up their payments for life insurance and they will be obliged to bear all the increases in the cost of living which, we are told, are inevitable. There is no need at this time to stress the enormous value of children to the nation. We are fighting this war with a view to the kind of world that the children are going to inhabit, and we do not want to discourage children coming into the world or to damage their education when they are here. The Chancellor of the Exchequer the other day said he would be very sorry to do anything harsh about children who have to be educated. I think the case is proved that married men with one, two or three children because of the alteration in the children's allowance are being called upon to pay a disproportionate increase in Income Tax and that the figure ought to be retained at £60.

6.4 p.m.

Mr. Jagger

I do not flatter myself that I can improve upon the case which my hon. Friend has put, but I wish to direct attention to an aspect of the question which he did not mention. He did not deal with the psychological factor, which is self evident, that the time when a man gets his relief for the education of his children is almost invariably at the very beginning of his career, and when he is in a less fortunate position as regards meeting his expenses than he may reasonably expected to be at a later time of life. I have gone through that period. I have reached the stage when my children support themselves and are looking forward to supporting me in a penurious old age. But I well remember how very great was the assistance to me at that time, when I had children, with all the growing expenses which come upon a young man at the time that he is building up his home and establishing himself not only in his own life, but in his business, when his income needs all the relief that it can get, and especially would I stress that the anxiety which has been displayed on all sides of the House in regard to the tendency to a decrease in the birth rate should be stimulated to rally opposition to the proposal to decrease this allowance. If anything could prove that £60 was a fair minimum sum the history which the Chancellor himself gave goes to prove it. It was raised, in a time of stress it was reduced, and then it was raised again. Had there not been an unanswerable case for £60 being the minimum, that restoration would never have taken place. I would appeal to the Chancellor to restore the £60.

6.8 p.m.

Mr. Horabin

I support the Amendment, because it seems to me to be a retrograde step to reduce the children's allowance. There was a definite movement, sponsored by the right hon. Gentleman the Member for Sparkbrook (Mr. Amery) and supported by Members of all parties, in favour of family allowances. I believe that that movement sprang from a growing realisation of the vital importance to the future of the country of a healthier and better educated younger generation. Now that war is on us, and a heavy toll is to be taken of the young people, it is surely wrong in principle to reduce the children's allowance. Those now in the age group 14–18 are to be called upon to carry out the important task of reconstructing our national life after the war is over. Therefore, for the future of the country, it is obvious that the children of the present generation are going to play a specially important part. Surely it is up to us to do all we can to see that they can carry out this task. Indeed, the Government at the present moment is showing that it thinks along these lines, because within the last few days it has appointed an advisory committee on adolescent welfare in war time. It is wrong for us to break away from those principles in this respect. That is why I and my friends hope that the Chancellor will accept the Amendment.

6.10 p.m.

Miss Rathbone

May I very shortly support the plea that has been put forward? It is a relatively minor matter in regard to the yield of taxation that is involved, but the instances given by the hon. Member who moved the Amendment show that, even in money the amount is by no means negligible. People's minds are always relatively comparative They consider what they are getting now in comparison with what they got in the past and also what they are getting in comparison with those who have no children. The difference is quite considerable. Let us remember that this same class of people will be severely hit by the Sugar Duty. I have just voted in the Government Lobby on the Sugar Duty, because I felt there was a great deal in the contention of the Chancellor of the Exchequer that all classes must contribute to the war. There is also this advantage in the increased Sugar Duty, that it decreases the consumption of sugar at this very anxious time; but we have to bear in mind the incidence of the tax. A family with children will consume a larger amount of sugar and will be likely, therefore, to pay the most.

This is not the only proposal in the Budget that affects this class. There is another proposal which will hit them rather heavily, although I do not say that it affects them alone. I refer to the proposal for lessening the present differentiation between earned and unearned income. That is a proposal which I regret. Take the case of a professional man with a few hundreds a year income and with a family. He may expect to be called up. He finds his family allowance is cut down. Then he has to pay more on sugar. His earned income may disappear altogether when he is called up, or owing to the exigencies of the war he may lose his job, or he may have to submit to a lower salary. That man will naturally feel that he is being heavily hit. This is the very last time when we ought to discourage parenthood. As the last speaker said, some time ago there was in the House a surging appeal in favour of a greater rather than a smaller differentiation in our economic system between those with families and those without. It seems to me a bad augury for the future if we are to lose sight of that urgent necessity because it is war time. We may be faced with a considerable rise in prices, and that will lead to demands for increases in wages and salaries. Many of us think that if that comes about, the best way of meeting it would not be by flat rate increases of wages and salaries but by family allowances.

The Deputy-Chairman (Colonel Clifton Brown)

The hon. Lady cannot pursue that matter, because it is not covered by any Financial Resolution that we have passed.

Miss Rathbone

I do not wish to dwell upon the point, but I would say that the Government are overlooking the fact that this is not the time to discourage but rather to encourage parenthood. There are many people who are asking them selves whether this is the time to bring children into the world. In the last war there was a great reduction in the birth-rate, and we have been suffering more or less from the results of that reduction in the birthrate ever since. In the words of one of the greatest experts on the population question, the present head of the London School of Economics, we are heading for race suicide. Not only are we not replacing ourselves but we are dropping far below the replacement rate. Therefore, this extra £2,000,000 of revenue which has to be raised ought to be raised in some other way rather than by this interference with the allowance for children. It would be far better to increase the differentiation between those who have, and those who have not children, and to increase the differentiation between earned and unearned incomes. To ignore the importance of these points is to cast a greater war burden on the parent than on the single person.

6.15 p.m.

Sir Annesley Somerville

While recognising the tremendous difficulties of the Chancellor of the Exchequer, I cannot resist appealing to him not to reduce the allowance for children. When the Prime Minister, as Chancellor of the Exchequer, introduced his Budget in 1935 and increased the allowance from £40 to £50, providing that for the first child there should be £50 allowed and for the others, no matter how many, there should be an allowance of £50, he said that he regretted the decline in the birthrate, coupled with the fact that increased un employment in the Dominions made them unwilling to receive our people. He foresaw the time when the Dominions would cry out for young people of the British race, and we should not be able to supply them. Therefore, he felt that he was doing something helpful for the Empire in raising the children's allowance. It would be a good investment to-day if we did something for those who are helping to carry on the British race, and I submit that, in spite of the great financial difficulties we have at the present time, it would be wise not to reduce the allowance, especially when there is a prospect that we shall lose so many of our young men and when we are beginning to get from the Dominions a stream, which will grow larger and larger, of splendid young men, who have made their mark already on the western front by their heroic exploits. I strongly appeal to my right hon. Friend not to press for this reduction in the allowance.

6.18 p.m.

Lieut.-Colonel Sir Mervyn Manningham Buller

I should feel very much relieved if the Chancellor of the Exchequer could see his way to reconsider this proposed reduction and to listen to the arguments put forward this afternoon. Unhappily, the Chancellor of the Exchequer requires every pound that he can raise, but I should be glad if he could raise the money other than by this reduction of allowance. Those of us who are married and have brought up families are fully aware that there is no time when taxation comes upon us so heavily as when the family is young. Taxation always bears harder on married people than on single people, but when people have to bring up, to feed, to clothe and educate their children there are many expenses to be borne. Later on the children may be earning their own living, and looking forward to the time when they can do something for the old man; but at that particular period when the children are only a few years of age expenses press very hard on the parents. That is a time when they particularly feel taxation. Therefore, I would ask my right hon. Friend to make the concession which has been asked, and I would make a very sincere request to him to do that if he possibly can.

6.20 p.m.

Mr. Higgs

I see no reason why this Amendment should be supported. Equality of sacrifice cannot always be assured in time of war. The hon. Member for Central Hackney (Mr. Watkins) referred to disproportionate increases, but he did not refer to the fact that married couples with three children and with £400 a year earned income, who at present pay no tax, will in future have to pay £2 10s. He gave the percentage increases with the maximum of six. Here is one with an infinite increase. Therefore, his argument as to disproportionate increases falls to the ground. We cannot avoid these sacrifices with conditions as they are, and I consider that the hardship to a man getting £400 a year and having to pay this additional £2 10s. is not so great as the hardship to the man who gets £2 10s. a week and has to pay the increased tax on sugar, beer and so forth. I would remind supporters of the Amendment that education, to a large extent, is provided by the State, and for that reason I cannot see that the position of these men for whom my Friends opposite are appealing is any harder than that of any other section of the community.

6.21 p.m.

Captain Crookshank

In view of the indications in the early stages of this Debate I was not expecting these questions to arise, and I am sorry that I can give hon. Members no satisfaction. It is sometimes overlooked that the allowance to children is a flat rate and it is exactly the same with a large income as with a small income. One should bear in mind that the majority of taxpayers are inevitably people with small means. That being so, the allowance to children is of far greater importance to them than the flat rate of £60 is to a man who has an income of £5,000 or £10,000 a year. When the effect on that class of taxpayer with an allowance of that size is compared with all his burdens, it is really such a small matter that it does not arise as any great hardship, and I think my hon. and gallant Friend will agree with that proposition. So one is driven back to see what sort of difference this is going to make to those with lower incomes. One gets some illuminating figures, because although the tables which are published do not distinguish between the reductions in marriage allowances of persons with children and earned incomes, yet as far as I can see in the case of a married couple with two children and £500 a year earned income, which I think was one of the cases which the hon. Gentleman instanced, the difference as a result of this change in the children's allowance for them is £3 15s. in the year. I appreciate that every shilling of taxation is a burden to the taxpayer, but I wonder whether one can say with the hon. Lady that that sort of difference is going to make the enormous change in the birth rate that she foreshadowed.

Miss Rathbone

It is the last straw that breaks the camel's back.

Captain Crookshank

I cannot help wondering whether this is going to be that last straw. Unfortunately neither of us is in a position to know, having no family of our own. I merely mentioned those figures to place the matter in a little truer perspective than that in which some hon. Gentlemen have already seen it.

The second consideration I would put before the Committee is that while it is unfortunate that as part of the general plan which my right hon. Friend has put before the Committee this is one of the changes which he feels it is his duty to impose—an arduous and unpleasant duty, but he still feels it is his duty— let us bear in mind that what we are doing is merely restoring the children's allowance to what it was during the early days of this Parliament, not a long time ago, but when most of us were elected. This allowance was then the law of the land and was gratefully accepted. Fortunately, when the revenue of the country permitted some remissions in taxation and some increases in relief, it was possible in 1936 to raise this allowance. The fact remains that it has been as high as £60 only since 1936.

I ask hon. Members to consider whether this reduction, which is part of the unfortunate effect of having to face the implications of war on the scale on which we are fighting it, is either this intolerable burden on the smaller Income Tax payer or this tremendous deterrent to family life. I wonder when they think that over if they will agree that it is so; I very much doubt it. On the other side of the scale I would remind hon. Members that it is expected to bring in £3,000,000 in a year, and for that reason, if for no other, my right hon. Friend much regrets that he is unable to agree to a higher allowance. Question put, "That the words proposed to be left out stand part of the Clause."

The Committee divided: Ayes, 179; Noes, 136.

Division No. 301.] AYES. [6.30 p.m.
Acland-Troyte, Lt.-Col. G. J. Graham, Captain A. C. (Wirral) Raikes, H. V. A. M
Adams, S. V. T. (Leeds, W.) Grant-Ferris, Flight-Lieutenant R. Ramsay, Captain A. H. M
Albery, Sir Irving Greene, W. P. C. (Worcester) Ramsden, Sir E.
Aske, Sir R. W. Gretton, Col. Rt. Hon. J. Reed, A. C. (Exeter)
Assheton, R. Gridley, Sir A. B. Reed, Sir H. S. (Aylesbury)
Baillie, Sir A. W. M. Grigg, Sir E. W. M. Reid, W. Allan (Derby)
Balfour, G. (Hampstead) Hacking, Rt. Hon. Sir D. H. Remer, J. R.
Baxter, A. Beverley Hannah, I. C. Rickards, G. W. (Skipton)
Beamish, Rear-Admiral T. P. H. Hannon, Sir P. J. H Robinson, J. R. (Blackpool)
Beauchamp, Sir B. C. Harbord, Sir A. Rosbotham, Sir T.
Beechman, N. A. Hely-Hutchinson, M. R. Rowlands, G.
Bernays, R. H. Heneage, Lieut.-Colonel A. P. Royds, Admiral Sir P. M. R.
Blair, Sir R. Hepburn, P. G. T. Buchan- Ruggles-Brise, Colonel Sir E. A.
Bossom, A. C. Hepworth, J. Russell, Sir Alexander
Boulton, W. W. Higgs, W. F. Russell, R. J. (Eddisbury)
Boyce, H. Leslie Holmes, J. S. Salmon, Sir I.
Braithwaite, J. Gurney (Holderness) Howitt, Dr. A. B. Salt, E. W.
Briscoe, Capt. R. G. Hudson, Rt. Hon. R, S. (Southport) Samuel, M. R. A.
Brocklebank, Sir Edmund Hume, Sir G. H. Sandeman, Sir N. S.
Brown, Rt. Hon. E. (Leith) Hunter, T. Sanderson, Sir F. B.
Brown, Brig.-Gen. H. C. (Newbury) Hurd, Sir P. A. Selley, H. R.
Browne, A. C. (Belfast, W.) Joel, D. J. B. Shaw, Major P. S. (Wavertree)
Butcher, H. W. Jones, Sir G. W. H. (S'k N'w'gt'n) Shepperson, Sir E. W.
Carver, Major W. H. Kellett, Major E. O. Smith, Bracewell (Dutwich)
Cayzer, Sir C. W. (City of Chester) Kerr, Sir John Graham (Sco'sh Univs.) Smith, Sir R. W. (Aberdeen)
Cazalet, Capt. V. A. (Chippenham) Knox, Major-General Sir A. W. F. Smithers, Sir W.
Channon, H. Lamb, Sir J. Q. Somervell, Rt. Hon. Sir Donald
Chapman, Sir S. (Edinburgh, S.) Leech, Sir J. W. Southby, Commander Sir A. R. J.
Chorlton, A. E. L. Leighton, Major B. E. P. Spens, W. P.
Christie, J. A. Little, J. Stewart, J. Henderson (Fife, E.)
Clarry, Sir Reginald Lucas, Major Sir J. M. Storey, S.
Cobb. Captain E. C. (Preston) MacAndrew, Colonel Sir C. G. Strauss, H. G. (Norwich)
Colville, Rt. Hon. John McCorquodale, M. S. Strickland, Captain W. F.
Conant, Captain R. J. E. Macdonald, Capt. P. (Isle of Wight) Stuart, Rt. Hon. J. (Moray and Nairn)
Cooper, Rt. Hn. T. M. (E'nburgh, W.) McEwen, Capt. J. H. F. Sueter, Rear-Admiral Sir M. F.
Crookshank, Capt. Rt. Hon. H. F. C. McKie, J. H. Sutcliffe, H.
Culverwell, C. T. Macmillan, H. (Stockton-on-Tees) Tate, Mavis C.
Davidson, Viscountess Magnay, T. Taylor, Vice-Adm. E. A. (Padd., S.)
Davies, Major Sir G. F. (Yeovil) Makins, Brigadier-General Sir Ernest Thomas, J. P. L.
De la Bère, R. Manningham-Buller, Sir M. Titchfield, Marquess of
Denman, Hon. R. D. Margesson, Capt. Rt. Hon. H. D. R. Touche, G. C.
Drewe, C. Markham, S. F. Train, Sir J.
Dugdale, Captain D. L. Mason, Lt.-Col. Hon. G. K. M. Tryon, Major Rt. Hon. G. C.
Eastwood, J. F. Mayhew, Lt.-Col. J. Tufnell, Lieut.-Commander R. L.
Edmondson, Major Sir J. Medlicott, F. Wallace, Capt. Rt. Hon. Euan
Ellis, Sir G. Mills, Sir F. (Leyton, E.) Ward, Lieut.-Col. Sir A. L. (Hull)
Elliston, Capt. G. S. Mitchell, H. (Brentford and Chiswick) Wardlaw-Milne, Sir J. S.
Emery, J. F. Moore, Lieut.-Col. Sir T. C. R. Waterhouse, Captain C.
Emrys-Evans, P. V. Morris, o. T. (Cardiff, E.) Wayland, Sir W. A.
Entwistle, Sir C. F. Morris-Jones, Sir Henry Webbe, Sir W. Harold
Everard, Sir William Lindsay Munro, P. Wells, Sir Sydney
Fildes, Sir H. O'Connor, Sir Terence J. Williams, Sir H. G. (Croydon, S.)
Fleming, E. L. O'Neill, Rt. Hon. Sir Hugh Windsor-Clive, Lieut.-Colonel G.
Fox, Sir G. W. G. Palmer, G. E. H. Winterton, Rt. Hon. Earl
Fremantle, Sir F. E. Perkins, W. R. D. Womersley, Sir W. J.
Fyfe, D. P. M. Ponsonby, Col. C. E. Wragg, H.
Gilmour. Lt.-Col. Rt. Hon. Sir .J. Power, Sir J. C. Young, A. S. L. (Partick)
Gledhill, G. Pownall, Lt.-Col. Sir Assheton
Glyn, Major Sir R. G. C. Procter, Major H. A. TELLERS FOR THE AYES.—
Goldie, N. B. Pym, L. R. Lieut.-Colonel Kerr and Mr. Grimston.
Gower, Sir R. V. Radford, E. A.
Acland, Sir R. T. D. Broad, F. A. Davies, S. O. (Merthyr)
Adams, D. M. (Poplar, S.) Brown, C. (Mansfield) Dobbie, W.
Adamson, Jennie L. (Dartford) Buchanan, G. Dunn, E. (Rother Valley)
Adamson, W. M. Burke, W. A. Ede, J. C.
Alexander, Rt. Hon. A. V. (H'lsbr.) Cape, T. Edwards, A. (Middlesbrough E.)
Anderson, F. (Whitehaven) Chater, D. Edwards, Sir C. (Bedwellty)
Attlee, Rt. Hon. C. R. Cluse, W. S. Edwards, N. (Caerphilly)
Banfield, J. W. Cocks, F. S. Evans, D. O. (Cardigan)
Barr, J. Collindridge, F. Evans, E. (Univ. of Wales)
Batey, J. Cripps, Hon. Sir Stafford Foot, D. M.
Beaumont, H. (Batley) Daggar, G. Frankel, D.
Benson, G. Dalton, H. Gallacher, W.
Bevan, A. Davies, R. J. (Westhoughton) Gardner, B. W.
Garro Jones, G. M. Leonard, W. Salter, Sir J. Arthur (Oxford U.)
Gibson, R. (Greenock) Leslie, J. R. Sexton. T. M.
Graham, D. M. (Hamilton) Lipson, D. L. Shinwell, E.
Green, W. H. (Deptford) Lunn, W. Silkin, L.
Greenwood, Rt. Hon. A. McEntee, V. La T. Silverman, S. S.
Grenfell, D. R. McGhee, H. G. Sinclair, Rt. Hon. Sir A. (C'thn's)
Griffith, F. Kingsley (M'ddl'sbro, W.) Maclean, N. Smith, Ben (Rotherhithe)
Griffiths, G. A. (Hemsworth) Mainwaring, W. H. Smith, E. (Stoke)
Griffiths, J. (Llanelly) Mander, G. le M. Smith, Rt. Hon. H. B. Lees (K'ly)
Groves, T. E. Marshall, F. Smith, T. (Normanton)
Hall, J. H. (Whitechapel) Maxton, J. Sorensen, R. W.
Hall, W. G. (Colne Valley) Messer, F. Stephen, C.
Harris, Sir P. A. Milner, Major J. Stewart, W. J. (H'ght'n-le-Sp'ng)
Harvey, T. E. (Eng. UniVs.) Montague, F. Summerskill, Dr. Edith
Hayday, A. Morrison, Rt. Hon. H. (Hackney, S.) Tinker, J. J.
Henderson, J. (Ardwick) Nathan, Colonel H. L. Tomlinson, G.
Henderson, T. (Tradeston) Naylor, T. E. Viant, S. P.
Hicks, E. G. Noel-Baker, P. J. Walkden, A. G.
Hills, A. (Pontefract) Oliver, G. H. Watkins, F. C.
Hopkin, D. Owen, Major G. Watson, W. McL.
Horabin, T. L. Paling, W. Wedgwood, Rt. Hon. J. C.
Isaacs, G. A. Parker, J. Welsh, J. C.
Jackson, W. F. Parkinson, J. A. White, H. Graham
Jagger, J. Pearson, A. Whiteley, W. (Blaydon)
Jenkins, A. (Pontypool) Pethick-Lawrence, Rt. Hon. F. W. Wilkinson, Ellen
Jenkins, Sir W. (Neath) Price, M. P. Williams, E. J. (Ogmore)
John, W. Quibell, D. J. K. Williams, T. (Don Valley)
Jones, A. C. (Shipley) Rathbone, Eleanor (English Univ's.) Wilmot, John
Kennedy, Rt. Hon. T. Ridley, G. Wilson, C. H. (Attercliffe)
Kirkwood, D. Riley, B. Windsor, W. (Hull, C.)
Lathan, G. Ritson, J. Woods, G. S. (Finsbury)
Leach, W. Roberts, W. (Cumberland, N.) TELLERS FOR THE NOES.
Lee, F. Rothschild, J. A. de Mr. Charleton and Mr. Mathers.

6.38 p.m.

Mr. Lees-Smith

I beg to move, in page 11, line 1, to leave out Sub-section (4).

This Sub-section introduces a ne scale of differentiation between earned and unearned income. At present earned income is given an allowance of one-fifth and the Chancellor of the Exchequer proposes to diminish that allowance and make it one-sixth. In every previous year for many years past an Amendment has been moved from this side of the House to increase the allowance and make it one-fourth. We cannot move that Amendment this year, but as the Chancellor of the Exchequer proposes to move in exactly the opposite direction we cannot allow his proposal to go without resistance, both by speech and division. We have claimed for many years that the allowance at its present scale is insufficient, and in previous years I have shown why we have thought it insufficient.

I may perhaps shorten my explanation by taking the example which I have given before. Take the case of a doctor who is earning £600 a year. He is given an allowance of one-fifth under the Income Tax, and therefore, he pays on £480 a year; that is to say, at the same rate as a man living on an income of £480 received from War Loan, or some other unearned income of £480. I have argued before that a doctor earning £600 a year is put in the same or as good an economic position as a man who lives on an investment of £480. If a doctor dies, his income ceases; if he goes on holiday it is suspended; and if he is ill, it disappears. He is expected to spend at least one-sixth of his income on insurance. On the other hand, a man living on an investment income of £480 a year is free from all those changes and chances. If he dies, the income goes on, as it does if he goes on holiday or is ill. He need not save money or insure himself, because there is provision for his old age. Therefore, the position of the two men is not the same.

I will give a calculation which indicates the strength of our case. It is a calculation representing the relative security of the two incomes. The capital value of a man getting £480 a year from investments at, say, 3½percent., is £14,000. In the case of a doctor earning £600 a year, his capital value in two years' purchase, that is to say, £1,200. 1 do not say that that calculation is conclusive, but it shows the great difference between the security of the two incomes. For that reason, we have urged that in the case of the doctor the deduction should be increased, and that he should be allowed an abatement of one-fourth. If we took that view in time of peace, our view is very much more powerful in time of war because of the effect on those two types of income.

In the Debate on the Budget Resolutions the other day, we heard a very searching speech from the hon. Member for Walsall (Sir G. Schuster), which was frequently commented on in the subsequent Debates. He pointed out the very simple fact that we are establishing all manner of controls, and he warned us that, in spite of those controls, we must be careful not to cramp the efforts of the man who has to turn the wheel. That is the effect of the change which the Chancellor is making here. He is putting 2s. on both earned and unearned income, but he is putting an extra amount upon the man who represents productive energy, who is a vital and active element in the production of wealth. Such a man is being placed in a disadvantageous position as compared with the recipient of unearned income, who everybody is glad is receiving the protection of the country now, but who does not pay any personal contribution to our war effort.

6.44 p.m.

Mr. Ridley

The Financial Secretary to the Treasury disposed of the previous Amendment to his own satisfaction by explaining that the change proposed in the children's allowances did not place any very considerable burden on the individual having £400 or £500 a year. I suppose that it is not a too intelligent anticipation to assume that the present Amendment will be disposed of by the right hon. and gallant Gentleman in the same way. I would, however, ask the Committee to consider the effect of the change that is now being made in what I would call its cumulative consequences. If one takes, for instance, a man getting £500 a year, who has a wife and two children, he was, before the present Budget, making an Income Tax contribution of £8 6s. 8d. a year. It may be said that it is only £8 6s. 8d., but my hon. Friend the Member for Central Hackney (Mr. Watkins) pointed out that that was regarded in the last Budget as being a fair figure, and therefore, it must be accepted as the basis of a fair con tribution.

If the original allowances had been continued in the present Budget, that man's contribution would be £12 10s. in a full year, that is to say, an increase, in terms of Income Tax, of 50 per cent.; but the cumulative effect of requiring him to pay an increase of 50 per cent. in the standard tax on the first £165 of his in come, reducing the personal allowance from £180 to £170, reducing the children's allowance from £60 to £50, and the earned income allowance from one-fifth to one-sixth, means that his contribution in a full year will be not £8 6s. 8d. or £12 10s., but £27 10s. Therefore, the increase between last year and next year is an increase in his case of 230 per cent. Not only is the tax raised and the allowances altered, but the effect of altering the allowances in that man's case is to make his taxable income £146 13s. 4d. instead of £100. Such a man, having £500 a year, is a man who very probably has striven with great energy and ability to build up for himself and his family some modest standard of social and domestic comfort. He can do that only by very careful budgeting. He is buying his house, maintaining his insurance premium, keeping his children at school perhaps a little longer than he himself was able to go to school, and very likely he is dipping deep down in terms of sacrifice in order to send his children to college. He will be affected—and will not mind it— by the statement that was made by the Minister of Health to-night; his children have been evacuated with their schools, and he will be asked to make a contribution to the cost of their evacuation and keep in the reception area.

Captain Crookshank

Not the cost of evacuation.

Mr. Ridley

I said that if the man's two children have been evacuated, then according to the statement made to-day by the Minister of Health, that man will be asked to make a contribution towards the maintenance of his evacuated children.

Captain Crookshank

The hon. Member referred to the cost of evacuation.

Mr. Ridley

I feel sure that the right hon. and gallant Gentleman knows what I mean. I am referring to the cost of maintaining in the reception area the two evacuated children.

Captain Crookshank

I know quite well, but I did not want it to go out by mistake that it was something to do with the cost of evacuation.

Mr. Ridley

I do not think the right hon. and gallant Gentleman ought to assume that what he understands quite easily other hon. Members will not have understood quite as well. Such a man will not mind paying that money, but we must not overlook the fact that it is another charge on a very carefully budgeted income. Probably such a man has managed to acquire a cheap car which two months ago he could have hold for £50 in order to meet a sudden family emergency or even to pay his Income Tax; but to-day, such a car is not an asset that can be realised. It cannot be sold because nobody wants to buy it. There is no field of economy in this man's income with the many standing charges which he has to bear. The only economy which he can adopt in order to meet this substantial increase in the Income Tax demand will be an injurious economy. It will be an economy on food and clothing and other necessities. It will be an economy, not on luxuries but on matters which contribute to the maintenance of a reasonable standard of comfort and decency in his home. Such a man has no desire to escape his natural and proper share of financial obligations but I feel certain that his proper share would be much smaller than the figure which is now being demanded as a result of this very considerable increase—an increase, as I have said, of 230 percent. in this salary range. I hope that, in this case, the Financial Secretary will find it possible to offer some relief.

6.52 p.m.

Captain Crookshank

I am sorry to disappoint the hon. Gentleman, but may I put this point before the Committee? This question of the differentiation between earned and unearned income is based upon—what? It seems to me that the principle must be very much that enunciated by the right hon. Gentleman that because a man is earning his income and has no invested income behind him, he is, to that extent, in a more precarious position as the source of his income may come to an end. That is the principle which has underlain previous Finance Acts and it has been recognised to the extent of saying that a proportion of that earned income must be assumed to be used by the recipient for some method of trying to safeguard himself. Relief there- fore is given on the broad assumption— I am not saying that everybody does it or even that anybody does it— that some portion of the earned income is used in that way and it is left free of tax, in order that the taxpayer may be able to put something aside for his dependants, or for his old age, or for some purpose of that kind.

Broadly speaking, that is the difference between the two kinds of income, but there is a further consideration. If a man is utilising the difference represented by the reliefs in providing for the future, it is also true that he gets relief in another direction, because the law makes allowances for insurance payments. It is to be remembered that the Royal Commission on Income Tax which sat some time ago, laid down certain broad principles which were accepted at the time by everybody. They considered that the proper differentiation was a relief of one-tenth on earned incomes, and one-tenth it was, from the time of that report until 1925, when the relief was changed to one-sixth. At that figure it remained up to the crisis of 1931 presumably to the satisfaction of the right hon. Gentleman opposite. In his first Budget of 1931, Mr. Snowden, as he then was, did not propose any alteration of that rate. In the second Budget of 1931 it was raised to one-fifth as a set-off against some of the other imposts which were then made, and there it has stayed until now. My right hon. Friend the Chancellor of the Exchequer thinks it right now that we should return to one-sixth.

I appreciate what the hon. Member opposite said about the cumulative effect, first in this direction and then in that direction, of these various alterations but it is, I fear, my unfortunate duty once again to remind the Committee of what we are trying to do in this Finance Bill. We are trying to raise the largest possible sum that can be raised out of taxation this year. My right hon. Friend in his Budget statement explained the importance of raising as much as possible by taxation and that is a policy which, in general, hon. Members opposite have accepted as being right in the circum stances and, having accepted it as right in the circumstances, I suggest it is clear, that this proposal is part of the consequence of adopting that policy. This item represents a sum of something like £6,000,000 a year and that is not a sum which we think we can reasonably let go by acceding to this Amendment. For that reason I advise the Committee to support the Government's decision

Question put, "That the words proposed to be left out stand part of the Clause."

The Committee divided: Ayes, 176; Noes, 122.

Division No. 302.] AYES. [6.58 p.m.
Acland-Troyte, Lt.-Col. G. J. Greene, W. P. C. (Worcester) Raikes, H. V. A. M.
Adams, S. V. T. (Leeds, W.) Gretton, Col. Rt. Hon. J. Ramsay, Captain A. H. M.
Amery, Rt. Hon. L. C. M. S. Gridley, Sir A. B. Ramsden, Sir E.
Aske, Sir R. W. Grigg, Sir E. W. M. Rathbone, J. R. (Bodmin)
Assheton, R. Grimston, R. V. Reed, A. C. (Exeter)
Baillie, Sir A. W. M. Hannah, I. C. Reed, Sir H. S. (Aylesbury)
Balfour, G. (Hampstead) Hannon, Sir P. J. H. Reed, Sir H. S. (Aylesbury)
Baxter, A. Beverfey Harbord, Sir A. Reid, W. Allan (Derby)
Beamish, Rear-Admiral T. P. H. Holy-Hutohinson, M. R. Remer, J. R.
Beauchamp, Sir B. C. Heneage,Linut.-Colonel A. P. Rickards, G. W. (Skipton)
Beechman, N. A. Hepburn, P. G. T. Buchan Robinson, J. R. (Blackpool)
Blair, Sir R. Hepworth, J. Rosbotham, Sir T.
Bossom, A. C. Higgs, W. F. Rowlands, G.
Boulton, W. W. Holmes, J. S. Rowlands, G.
Boyce, H. Leslie Howitt, Dr. A. B. Ruggles-Brise, Colonel Sir E. A.
Briscoe, Capt. R. G. Hudson, Rt. Hon. R. S. (Southport) Russell, Sir Alexander
Broaklebank, Sir Edmund Hume, Sir G. H. Russell, R. J. (Eddisbury)
Brooke, H. (Lewisham, W.) Hunter, T. Salmon, Sir I.
Brown, Brig.-Gen. H. C. (Newbury) Hurd, Sir P. A. Salt, E. W.
Browne, A. C. (Belfast, W.) Joel, D. J. B. Samuel, M. R. A.
Butcher, H. W. Jones, Sir G. W. H. (S'k N'w'gt'n) Sandeman, Sir N. S.
Carver, Major W. H. Kerr, Sir John Graham (Sco'sh Univs.) Sanderson, Sir F. B.
Cayzer, Sir C. W. (City of Chaster) Knox, Major-General Sir A. W. F. Schuster, Sir G. E.
Cazalet, Capt. V. A. (Chippenham) Lamb, Sir J. Q. Shakespeare, G. H.
Channon, H. Leech, Sir J. W. Shaw, Major P. S. (Wavertree)
Chapman, Sir S. (Edinburgh, S.) Leighton, Major B. E. P. Shepperson, Sir E. W.
Christie, J. A. Lipson, D. L. Simon, Rt. Hon. Sir J. A.
Cobb, Captain E. C. (Preston) Little, J. Smith, Bracewell (Dulwich)
Colville, Rt. Hon. John Locker-Lampson, Comdr. O. S. Smith, Sir R. W. (Aberdeen)
Conant, Captain R. J. E. Loftus, P. C. Smithers, Sir W.
Crookshank, Capt. Rt. Hon. H. F. C Lucas, Major Sir J. M. Somervell, Rt. Hon. Sir Donald
Culverwell, C. T. Mabane, W. (Huddersfield) Spens, W. P.
Davidson, Visoountess MacAndrew, Colonel Sir C. G. Stanley, Rt. Hon. Oliver (W'm'ld)
Davies, Major Sir G. F. (Yeovil) McCorquodale, M. S. Stewart, J. Henderson (Fife, E.)
De la Bère, R. Macdonald, Capt. P. (Isle of Wight) Storey, S.
Denman, Hon. R. D. McKie, J. H. Strauss, H. G. (Norwich)
Drewe, C. Magnay, T. Strickland, Captain W. F.
Dugdale, Captain D. L. Makins, Brigadier-General Sir Ernest Stuart, Rt. Hon. J. (Moray and Nairn)
Eastwood, J. F. Manningham-Buller, Sir M. Sutcliffe, H.
Edmondson, Major Sir J. Margesson, Capt. Rt. Hon. H. D. R. Tate, Mavis C.
Elliot, Rt. Hon. W. E. Mark ham, S. F. Taylor, Vice-Adm. E. A. (Padd., S.)
Ellis, Sir G. Mason, Lt.-Col. Hon. G. K. M. Thomas, J. P. L.
Elliston, Capt. G. S. Mayhew, Lt.-Col. J. Titchfield, Marquess of
Emery, J. F. Medlicott, F. Touche, G. C.
Emrys-Evans, P. V. Mills, Sir F. (Leyton, E.) Train, Sir J.
Entwistle, Sir C. F. Mitchell, H. (Brantford and Chiswick) Tufnell, Lieut.-Commander R. L.
Evans, D. O. (Cardigan) Moora, Lieut.-Col. Sir T. C. R. Ward, Lieut.-Col. Sir A. L. (Hull)
Everard, Sir William Lindsay Morris, O. T. (Cardiff, E.) Wardlaw-Milne, Sir J. S.
Fleming, E. L. Morris-Jones, Sir Henry Waterhouse, Captain C.
Fox, Sir G. W. G. O'Connor, Sir Terence J. Wayland, Sir W. A
Fremantle, Sir F. E. O'Neill, Rt. Hon. Sir Hugh Webbe, Sir W. Harold
Fyfe, D. P. M. Palmer, G. E. H. Wells, Sir Sydney
George, Major G. Lloyd (Pembroke) Perkins, W. R. D. Williams, Sir H. G. (Croydon, S.)
Gilmour, Lt.-Col. Rt. Hon. Sir J. Pickthorn, K. W. M. Windsor-Clive, Lieut.-Colonel G.
Gledhill, G. Ponsonby, Col. C. E. Winterton, Rt. Hon. Earl
Glyn, Major Sir R. G. C. Power, Sir J. C. Womersley, Sir W. J.
Goldie, N. B. Pownall, Lt.-Col. Sir Assheton Wragg, H.
Gower, Sir R. V. Procter, Major H. A. Young, A. S. L. (Partick)
Graham, Captain A. C. (Wirral) Pym, L. R. TELLERS FOR THE AYES.—
Grant-Ferris, Flight-Lieutenant R. Radford, E. A. Lieut.-Colonel Kerr and Mr. Munro.
Acland, Sir R. T. D. Benson, G. Collindridge, F.
Adams, D. M. (Poplar, S.) Bevan, A. Cripps, Hon. Sir Stafford
Adamson, Jennie L. (Dartford) Brown, C. (Mansfield) Daggar, G.
Alexander, Rt. Hon. A. V. (H'lsbr.) Buchanan, G. Dalton, H.
Anderson, F. (Whitehaven) Burke, W. A. Davies, R. J. (Westhoughton)
Attlee, Rt. Hon. C. R. Cape, T. Davies, S. O. (Merthyr)
Barr, J. Charleton, H. C. Dobbie, W.
Batey, J. Cluse, W. S. Dunn, E. (Rother Valley)
Beaumont, H. (Batley) Cocks, F. S. Ede, J. C.
Edwards, A. (Middlesbrough E.) Kirkwood, D. Roberts, W. (Cumberland, N.)
Edwards, Sir C. (Bedwellty) Lathan, G. Sexton, T. M.
Edwards, N. (Caerphilly) Leach, W. Silkin, L.
Evans, E. (Univ. of Wales) Lee, F. Silverman, S. S.
Foot, D. M. Leonard, W. Sinclair, Rt. Hon. Sir A. (C'thn's)
Frankel, D. Leslie, J. R. Smith, Ben (Rotherhithe)
Gallacher, W. Lunn, W. Smith, E. (Stoke)
Gardner, B. W. McEntee, V. La T. Smith, Rt. Hon. H. B. Lees- (K'ly)
Garro Jones, G. M. McGhee, H. G. Smith, T. (Normanton)
Gibson, R. (Greenock) Maclean, N. Sorensen, R. W.
Graham, D. M. (Hamilton) Mainwaring, W. H. Stephen, C.
Green, W. H. (Deptford) Mander, G. le M. Stewart, W. J. (H'ght'n-le-Sp'ng)
Greenwood, Rt. Hon. A. Marshall, F. Summerskill, Dr. Edith
Grenfell, D. R. Mathers, G. Tinker, J. J.
Griffith, F. Kingsley (M ddl'sbro, W.) Maxton, J. Tomlinson. G
Griffiths, G. A. (Hemsworth) Milner, Major J. Viant, S. P.
Griffiths. J. (Lianelly) Mentague, F. Walkden, A. G.
Hall, J. H. (Whitechapel) Morrison, Rt. Hon. H. (Haekney, S.) Watkins, F. C.
Hall, W. G. (Colne Valley) Nathan, Colonel H. L. Watson, W. McL.
Harvey, T. E. (Eng. Univ's.) Naylor, T. E. Wedgwood, Rt. Hon. J. C.
Hayday, A. Noel-Baker, P. J. Welsh, J. C.
Henderson, J. (Ardwick) Oliver, G. H. White, H. Graham
Henderson, T. (Tradeston) Owen, Major G. Wilkinson, Ellen
Hills, A. (Pontefract) Paling, W. Williams, E. J. (Ogmore)
Hopkin, D. Parker, J. Williams, T. (Don Valley)
Horabin, T. L. Parkinson, J. A. Wilmot, John
Isaacs, G. A. Pearson, A. Wilson, C. H. (Attercliffe)
Jackson, W. F. Pethick-Lawrence, Rt. Hon. F. W. Windsor, W. (Hull, C.)
Jagger, J. Price, M. P. Woods, G. S. (Finibury)
Jenkins, A. (Pontypool) Quibell, D. J. K. TELLERS FOR THE NOES.—
Jenkins, Sir W. (Neath) Rathbone, Eleanor (English Univ's.) Mr.Whiteley and Mr. Adamson.
John, W. Ridley, G.
Kennedy, Rt. Hon. T. Ritson, J.

Question, "That the Clause, as amended, stand part of the Bill," put, and agreed to.

Motion made, and Question proposed, "That the Clause stand part of the Bill."

7.5 p.m.

Mr. J. Wilmot

I regret very much that the Financial Secretary to the Treasury, with that courtesy and charm which we always expect from him, found it necessary to resist what I think were the unanswerable claims of my hon. Friends for a reconsideration of the alteration of these allowances—the earned income allowance, the personal allowance, and the children's allowance. I regret it very much, because I think it becomes necessary to say some things about the structure of this Budget and the Government's attitude to the incidence of war-time taxation which I, for one, would very much have preferred should have been left unsaid; but, in view of the attitude which the Chancellor has taken up in regard to these allowances, in spite of the evidence of their cumulative effect which my hon. Friends brought forward, I am bound to say that, in my opinion, the taxpayers of this country, who, in the main and in the majority, are people with small incomes which they earn, will regard this Budget as a pretty dishonest sham. It was brought forward as a far-reaching, sweeping gesture of general and equitable sacrifice and as a proper contribution from everybody towards the cost of the war, which all of us believe we are bound to see through for the sake of the liberties of our people. But the Chancellor, in order to earn our commendation, needs not only to make a bold effort to obtain the necessary finances; he needs also to adjust his taxation in accordance with the principles of equity and justice; and I am bound to say that when one comes to examine the incidence of this new taxation, it appears that he has so juggled with these allowances that he is taking as much as he can from the poor and as little as he can from the rich. That seems to me to be an indefensible principle of taxation. I regret that it is necessary to speak strongly, but if it be true, as I suggest and as I hope to show, that it is upon principles of that sort that this Budget has been framed, then I suggest that this is the time for speaking clearly and strongly.

Let us just look calmly at the incidence of taxation as disclosed by the tables which were circulated as a White Paper. I think the Committee will agree, first, that the present contribution from the varying sections of the community represents an equitable peace-time contribution. That is going rather farther than I myself would be prepared to go, because I think that, even as the taxation is before this Budget passes, the pres sure is far too hard on the small salary earner; but, even taking the present basis as a fair one, let us see what monstrous anomalies the juggling with these allow- ances produces. If hon. Members will refer to these tables they will find that with the present Income Tax payments a single man earning £150 a year pays £1 13s. 4d. and a married couple with no children also pay £1 13s. 4d. when they have £250 income. This House in its wisdom has determined that, having regard to the respective burdens of the single man and the married couple with no children, it is equitable that the single man with £150 and the married couple with £250 should pay the same amount in Income Tax. What happens when the Chancellor of the Exchequer has had his way by juggling with these allowances? The single man's £1 13s. 4d. goes up to £4 13s. 9,d., but the married couple's £1 13s. 4d. goes up to £7 3s. 9d.

What justification is there for that? If it was proper that these two classes should pay the same tax before this Budget, why should the increase for the married couple be nearly twice as much as the increase for the single man? I will take an even more glaring anomaly, that of a married couple with one child and a married couple with three children. Before these proposals are put into force a married couple with one child with an earned income of £350 pays £3 6s. 8d., and a married couple with three children pays £3 6s. 8d. on an income of £500. This is an adjustment to meet the extra cost of raising a larger farmily, and the Chancellor decreed last year that these two classes should pay the same. What is the effect of the war expenditure on these two families? The married couple with one child will have their taxation increased to £13 8s. 9d., while the married couple with three children will have their tax in creased to £18 2s. 6d. I ask again why the couple with three children should be asked to pay £5 more than the couple with one child. I hope the Chancellor answers this, because it is a question, as I find from my post-bag, which is being asked and discussed in hundreds of families. These anomalies run right through the scales, because the Chancellor has arbitrarily tampered with fundamental bases of taxation which have been hallowed by usage and are found to be roughly equitable. The result of these changes is that the cost of the war will be placed most hardly on the largest families. There is another aspect of injustice which arises from these alterations. One would have thought that at this time it was especially necessary to encourage effort, enterprise and work. We have no use in war-time for the idle rentier. One would have thought that if the Chancellor wanted to adjust his allowances he would have gone to particular pains to make it more profitable to earn money than merely to draw it. I should have expected that the scales would have been weighted in favour of the earned income even more in war-time than in peace-time. That has not happened, however. Hon. Members will find by reference to these useful scales which the Chancellor was good enough to circulate, that, as compared with the scales before the war, the unearned Income Tax payer comes off lighter than the earned Income Tax payer. I ask the Chancellor not to regard this point as a narrow class issue. It affects Income Tax payers in all grades. It is indefensible at this time that established principles of taxation should be upset in favour of unearned income.

The Chancellor may say what I think he would be justified in saying, "I have listened to these pleas, but I have to get the money." That is what the Financial Secretary said in his own eloquent way. Our answer is that we agree that the Chancellor has to get the money, but that there are other and more equitable means of getting it than the means he has chosen of tampering with these allowances. He could, of course, have raised the standard rate by another 6d. and left the allowances alone. My hon. Friend the Member for Clay Cross (Mr. Ridley) explained with great pungency and lucidity how the alterations of these allowances affect the specimen case of the £500 a year man. It was an astonishing disclosure. It showed that the raising of the standard rate only raises the tax from £8 odd to £12 odd, but the tampering with the allowances raises it to £27. The effect on the salary earners, the black-coated workers, is that they are going to pay for the war, not by way of an increased standard rate of Income Tax, but by way of tampering with the allowances.

Therefore, it seems to me that the Chancellor is running the risk of losing the single-hearted support of a most vital and necessary and very large section of the community because they feel, and I am bound to say I think rightly feel, that he has done something with one hand and something else with the other. While appearing to raise the money by increasing the standard rate of tax he has taken a special cut at the salary earners by juggling with the allowances. There may be an answer to all this, and if there is I shall be delighted to hear it. There may be something to be said which will wipe away this feeling of injustice which has been created in my mind and, from evidence which reaches me as a result of some remarks which I made last week on the Budget Resolutions, in the minds of very large numbers of people, rot only individuals but associations representing professional workers. They feel they have been singled out for a special arrangement at a time when, in normal circumstances, they are carrying a very heavy burden. I ask the Chancellor either to tell us something that will relieve this sense of inequity or else revise the allowances again.

7.21 p.m.

Sir J. Simon

After the powerful speeches to which we have listened I feel that I ought to say a word or two, and I hope the Committee will excuse me if I am brief. The short answer to what has been said is this: I have conceived it my duty, and I hope the House of Commons will regard it as its duty, to revise the curve of Income Tax, as I said in my Budget speech, all along the line. It would, of course, be perfectly possible to have proposed that it should be revised only at the upper end. It would be quite possible to say, "Let us leave the effective rate of charge on people with but a few hundreds a year as it is but let us pile it on still more steeply at the top." I believe it would be quite wrong of me to enter upon my task in that spirit, and I think there are a great many people outside the House who really feel there is a fundamental justice in trying to revise this curve of Income Tax all along the line.

It is one of the commonest mistakes of people who do not study the subject minutely to say that everybody's Income Tax has been raised to 7s. or 7s. 6d., which is the standard rate, and the value of the tables referred to is that they show what is the effective rate, the real rate, which is being charged to people with different incomes. Take the instance which has been quoted of the man with £500 a year and two children. When the full effect of his reduced allowances is taken into account he will be asked in 1940–41 to pay £27 10s. of his income. I know that it is difficult for a man with £500 a year to find that amount, but, after all, what is that amount expressed in the terms of effective rate of tax? It is Is. Id. in the £. I really cannot think the House of Commons is doing anything very unjust in that. It is not the case, as has sometimes been supposed, that these allowances operate only in favour of people with the smaller incomes. These allowances apply to everybody. Every married man, every man with children, every man who is earning a big income, is entitled to the same allowances as the man with the small income; but naturally they represent less to the man with the big income. If we were to plot out the curve—I sometimes wish that we had a blackboard here and a piece of chalk with which to do it—I think it would appear to any fair-minded man that I really had taken the existing curve and had proposed changes in it—I agree all along the line—which certainly could not be reasonably described as favouring the rich at the expense of the poor.

I do take the view that the man within the Income Tax limits, wherever he is to be found, must in the circumstances be asked to pay more; and I believe the general judgment of the House and of the people outside is that on the whole the adjustment has been made fairly. It is impossible to regard the allowances as they were before I proposed these changes as being something sacrosanct, orthodox, which nobody must touch at his peril. They have been altered, one way or the other, again and again, and the allowances necessarily have to be reconsidered and reduced at a time when stringent conditions require a greatly increased contribution. I hope, the re fort-, that the Committee will be prepared to pass this Clause. The scheme of Income Tax is not intended to get contributions from one level of people at the expense of another. This is an attempt, I avow it as such, to get a contribution from all and every kind of Income Tax payers over and above what they paid before, but I trust the Committee will think it has been done as fairly and reasonably as the circumstances permit.

Mr. Ridley

The Chancellor of the Exchequer spoke of a curve. May I ask seriously whether he has looked at this matter in terms of what he calls "a curve"? If the effective rates of Income Tax were so arranged 12 months ago as to provide a curve, then the changes in the effective rates do not provide a curve but a line with several bumps and points and recesses in it. Last year it may have been symmetrical; this year it is not symmetrical. If he is thinking in terms of a. curve I would ask him to get his experts to plot the two lines for him.

7.28 p.m.

Mr. Tomlinson

I would ask the Chancellor how is it that a rate of tax of Is. 8d. in the £ last year on that portion of a man's income which he thought should be subject to some differentiation in tax should now be increased by 2s. Id. to 3s. 9d., whereas the standard tax has been increased from 5s. 6d. to 7s. 6d.? We have been talking in terms of percentages, and an in crease of 2s. Id. on Is. 8d. is well above the percentage of 2s. upon 5s. 6d. The man at the lower end of the scale who cannot think in terms of £500 a year but who does think in terms of the Is. 8d. in the £ which he is called to pay upon his hard-earned money will want some convincing that it is equitable to raise that 1s:. 8d. to 3s. 9d. whilst we are only raising the full rate from 5s. 6d. to 7s. 6d. Wherein is the equity?

Clause 10 ordered to stand part of the Bill.

CLAUSE 11.—(Relief in respect of diminution of earned income.)

7.29 p.m.

The Solicitor-General (Sir Terence O'Connor)

I beg to move, in page 14, line 14, to leave out from "income" to the end of line 15.

This Amendment, together with the next Amendment, both of which stand in the name of my right hon. Friend the Chancellor of the Exchequer, are intended to correct a mistake in the drafting which occurred in the hurry of getting the Bill together. The Clause deals with the case where a person has suffered in the course of the present year a reduction of 20 per cent. or more in the actual income that he receives this year. In such a case he is entitled to have assessed for purposes of Income Tax not the notional income, which is assessed according to the Act, but the actual income of the year.

The difficulty in all these cases is the marginal case. Suppose, for example, a man has an income of £1,000 a year and that he finds himself reduced to £800. He is entitled therefore to take the £800 figure. Suppose that his income is £805 or £810. It would clearly be wrong that he should not be able to find some means of establishing his claim. Therefore, in this and in similar legislation, there is what is called a jump provision. He has the option of surrendering the excess of that income to the Exchequer and of treating it as though he had, in fact, a 20 percent. diminution. This arrangement has been carefully and accurately worked out as regards income but the effect of the words as they at present stand in the Bill is that, not with standing that the taxpayer has surrendered to the Exchequer the surplus over the 80 percent., he finds it is aggregated against his income for purposes of Surtax. That is obviously unfair and wrong, because he would be paying taxtwice over on the sum which he would be paying to the Exchequer. In order to correct that anomaly I move the Amendment.

Amendment agreed to.

Further Amendment made: In page 14, leave out lines 18 to 22. — [The Solicitor-General.]

7.33 p.m

Colonel Nathan

I beg to move, in page 15, line 22, at the end, to insert: Provided that where the business year of the individual falls partly in one fiscal year and partly in another fiscal year the actual earned income for any fiscal year shall be ascertained by a proportionate adjustment between the two fiscal years within which the business year of the individual falls. This Amendment raises no question of principle. It is purely machinery, or I might even say elucidatory. It arises out of the statement made by the Chancellor of the Exchequer in opening his Budget, to which effect is given by this Clause of the Bill, that relief would be given in respect of the financial 3'ear 1939–40 to those persons who, by reason of the war, suffered a diminution in their earned income for the year 1939–40. On a first studied reading of the provisions of the earlier part of Clause 11, the wording was open to the construction that there was not sufficiently defined what income actually earned for 1939–40 was to be taken into account.

The question arises in this way: It would be a perfectly simple matter were the business year of the individual taxpayer to correspond and be coterminous with the fiscal year, but, of course, in the vast majority of cases, that does not happen. Let me give an example. I suppose that in the greater number of businesses the financial year runs either to 30th June or to 31st December. I assume, for the purposes of my argument, that I am dealing with a business year which ends on 30th June. The assessment to tax of such a business, in respect of the revenue year 1939–40, that is, our present financial year, ending in April next, would be based upon the actual income ended on 30th June, 1938. What would be the actual income for the revenue year11939–40? It could not be the business year from 1st July, 1938 to 30th June, 1939, because, if that were so, no part of the year would fall within the war period, and the relief which the right hon. Gentleman proposes and intends to give would not arise. It cannot be the revenue year from 1st July, 1939, to 30th June, 1940, because, although that is the business year 1939–40, all of it does not fall within the fiscal year 1939–40; indeed, three months of it fall beyond the end of the present fiscal year.

It seems to me, therefore, that what the Chancellor of the Exchequer desires by this Bill to provide is that, in ascertaining the actual earned income in respect of the fiscal year 1939–40, an adjustment shall be made between the two business years which, ending on 30th June, fall within the fiscal year 1939–40. So that, to give a practical example of a business year ending on 30th June, so much of the business year's income as fell between 30th June, 1939, and 5th April, 1940, would be taken into account, for the purpose, together with a sufficient period—perhaps I am confusing both the Committee and myself with this example and so, with the assistance and approval of the Committee I will give my example again. The period of the fiscal year 1939–40 breaks into the business year 1938–39 and the business year 1939–40. The object of the Amendment which I am proposing is that there should be an equitable apportionment of those business years, based upon the number of months of the fiscal year which fell within those two effective business years; with the result that there will be ascertained the actual earned income for the fiscal year 1939-40. I said at the opening of my observations that I felt, on a first and even on a studied reading of the Clause, that it did not quite answer that requirement, which seems an essential requirement, having regard to what the Chancellor of the Exchequer said in the House of Commons of his intentions. I am inclined to think that I accept the view which the Chancellor of the Exchequer has been good enough to express to me in conversation, .that the Bill, as drawn, does answer the point which is intended to be answered by my Amendment. For my part, if we can have an assurance from the Chancellor of the Exchequer that there will be an apportionment, I shall be satisfied that my Amendment remains entirely answered.

7.40 p.m.

Sir J. Simon

The hon. and gallant Gentleman has been explaining what is a difficult thing to explain, but his object is clear to us all. One of the features of this Budget and this Finance Bill which I think has been received with general approval—and that is something which I value—is the proposal that, in view of the way in which a good many incomes have dropped owing to the outbreak of war, we should give the taxpayer the option to substitute the actual income for the present year in place of the larger, conventional figure on which he would otherwise have to pay. This is the Clause that carries that out. I think there is no difference between us as to what we wish to do. We are going to take two figures. I will take the actual income first. Between what dates is that actual income to be ascertained? Between 6th April last and 5th April next. If, as in the case of many traders, the ordinary period up to which accounts are made is not identical with that period, there would have to be apportionments made accordingly.

Therefore, the thing to be looked at is what the Clause calls "actual earned in- come" for the fiscal year 1939–40. With what is that to be compared? Not usually with the figure for the 12 months actually preceding it. It is to be compared with what the Clause describes as "earned income as assessed" for that year. In the case put by the hon. and gallant Gentleman it would be the profits for the calendar year to mid-summer, 1938. There would then be a certain gap, because the income which is the basis of the assessment this year is, in fact, the income for more than 12 months ago. A man may come forward and say, "I am assessed to-day on £1,000, because £1,ooo was my profit up to the date on which I make up my accounts, but, owing to circumstances directly or indirectly connected with the present war, I am faced with a serious drop in income." I have invited the Committee to agree with me that in that case he shall pay on the actual income of this fiscal year, and not on the larger conventional sum. Having discussed it with the Inland Revenue authorities, I am satisfied that the Clause is in the correct form to secure that result. The hon. and gallant Gentleman and the Committee may be sure that we do in the Bill effect the result that he wishes. The point was well worth making, but I hope the Committee will accept my assurance and allow the Amendment to be withdrawn.

Mr. Pethick-Lawrence

Of course, the assessment of Income Tax is ordinarily made some time before 31st December and payment is demanded on 1st January. I understand the position in regard to this is that the taxpayer would have the option of saying, "My income for the year ended 5th April, 1940, is going to be below 80 percent. of the figure for which I am assessed, and, therefore, I demand to be freshly assessed, and, instead of paying on 1st January, 1940, to pay when that assessment is made." Will not that, in fact, mean in a large proportion of cases that there will be delay in payment?

Sir J. Simon

That is quite an important point, and one which has received consideration. I would remind the right hon. Gentleman that we are speaking here of earned income under Schedules D and E and, as he knows, the tax is paid in two instalments, January and July. We have provided in Sub-section (2) of this Clause that the relief from standard rate tax shall be given so far as possible from the second instalment. Consequently, I think we may trust the authorities and the taxpayer to adjust this reasonably. There may be cases where there has been such a complete drop that we may not be able to get the first payment, but I know the Inland Revenue will do its best to adjust this.

Sir Herbert Williams

The assessment is to be modified in cases where hardship arises, but the other cases will be—

The Deputy-Chairman

The hon. Member had better raise that on the Question, "That the Clause stand part of the Bill."

Colonel Nathan

I thank the Chancellor for what he has said, but will he bear in mind that this is a relief granted only for a single year, and the way will have to be opened for future years in respect of income which fell entirely in the pre-war period. I beg to ask leave to withdraw the Amendment.

Amendment, by leave, withdrawn.

Motion made, and Question proposed, "That the Clause, as amended, stand part of the Bill."

7.49 p.m.

Mr. Benson

There may be nothing in this point, but the Clause is so complicated that I feel emboldened to raise it. The Chancellor is giving certain reliefs. If an income in 1939–40 falls below the assessed income, the actual income for 1939–40 may be substituted for the assessed income. But he has made a limit. If 1938–39 turns out to be a year in which the actual income is higher than the assessed income, the relief for 1939–40 is reduced by the amount by which the actual income for 1938–39 exceeds the assessed income for that year. In other words, the Chancellor of the Exchequer takes very good care in his assessments that he does not skip any single year.

Sir J. Simon

Not a very good year at any rate.

Mr. Benson

He links up 1937–36, 1938–39 and 1939–40 in his standard rate, but when it comes to the assessment of Surtax, I think there is a loophole. Surtax, which would normally be paid in 1939–40, is assessed not on 1938–39, but on the income arising from 1937–38. The income for 1937–38 may be a very good one; it may be the maximum income of the Surtax payer. When he comes to pay his Surtax in 1939–40 he can, if he wishes, substitute the year 1938–39.

The Solicitor-General


Mr. Benson

Oh, yes. The expression, earned income," means, in relation to any year, the amount of earned income assessed and charged at the standard rate of tax for that year. That means that the year's income assessed for Surtax in 1939–40 can be based on the income of 1938–39 and not, as it normally would be, of 1937–38. The result is that as far as Surtax is concerned there is a very definite hiatus, as the year 1937–38 may be completely lost sight of although it may be a very excellent year. The ordinary Income Tax payer cannot get out of any good year because the three years are interlinked, but in respect of Surtax they are not interlinked. The year 1937–38, which is the basis for the 1939–40 tax, is completely lost sight of. Let us take the effect of Sub-section (3, b). Here in certain circumstances the earned income Surtax payer may be taxed on four-fifths of the earned income as assessed, which is the income of 1938–39. If we assume the income of 1938–39 as being £10,000, and the income of 1939–40 as being £8,000 then the Surtax payer can ask to be assessed, and can pay tax in 1939–40, upon £8,000 despite the fact that his income in 1938–39 was £10,000. But his income in 1937–38, when he would normally have paid tax, may have been £ 20,000. It may have been an entirely unrelated year to his normal income. But in the Clause as drafted he may pay on the basis of four-fifths of his 1938–39 Income Tax income, and the result will be that 1937–38 will be completely lost sight of by the Revenue and will not, as in the case of the ordinary Income Tax payer, be brought in under the proviso in Sub-section (1).

7.54 p.m.

Sir H. Williams

We are dealing with the problem of assessments, but it is not the real problem which will present itself to a great many citizens on 1st January. A great many people, who like my self may be improvident up to a point, do not pay Income Tax out of what they save from past income, but out of the income for the next year. I am certain that a great many of us will be em- barrassed by the fact that we are rather hard up and do not know where the money is to come from to pay the Income Tax demand that we shall receive about Christmas time. I do not want to ask the Chancellor of the Exchequer perhaps to answer to-night, because if he were to advertise to the world that he is going to instruct the collectors to be kindly, a lot of people will no doubt take advantage of it. As a Minister he may have his Income Tax deducted before he receives his salary, but the rest of us are not in that position, and I know that I am speaking for many Income Tax payers when I say that perhaps the maximum disturbance to people's incomes is the disturbance which has already happened and will continue to happen in the next three or four months. If this war is to follow precedents of previous wars, we shall enjoy rather a false prosperity for the time being, and people will apparently have the money with which to meet Income Tax, but the maximum problem is the problem which will arise on 1st January. I suggest that the Chancellor of the Exchequer should consider in what way he can make it possible for the path to be made a little easier for the very large number of people, who, though quite properly assessed, may find themselves greatly embarrassed to find the wherewithal to meet their obligations which will become due on 1st January.

7.57 p.m.

The Solicitor-General

As my hon. Friend the Member for South Croydon (Sir H. Williams) has relieved my right hon. Friend the Chancellor of the Exchequer from the obligation of answering him to-night, perhaps I shall do equally well in making a blank negation in advance. With regard to the point raised by the hon. Gentleman the Member for Chesterfield (Mr. Benson) I would prefer to look into the observations which he has made between now and the Report stage for a conclusive answer. I believe that the answer is to be found in the Clause itself, but it is because I am a little doubtful about that that I would defer a conclusive answer until the Report stage. There is nothing in the Clause which touches the Surtax payable in January, 1940, and that is where, I think, the hon. Gentleman has got it wrong. If he will look at Clause 11 (1, b) he will see what relief is being accorded. It is: To such relief from Surtax for that year as will reduce the amount of Surtax payable. That year is 1939–40. It is payable on 1st January, 1941, though the assessment is, as he says, based on the income of 1938–39. I think that that is the answer to him, but meanwhile between now and the Report stage I will look carefully into his observations, and if there is a flaw we will see what can be done.

Mr. Benson

I thank the hon. and learned Gentleman for the promise he has made, but I shall watch for his remarks in print dealing with this matter, as the question is an appallingly complex one and difficult to understand. If what the hon. and learned Gentleman says is correct, I think he has definitely answered the point.

CLAUSE 12. — (Charge of excess profits tax.)

Motion made, and Question proposed, "That the Clause stand part of the Bill."

8.0 p.m.

Sir J. Simon

We have made good progress and, from various indications that I have received, I think we shall find that there will not be very long or embittered controversy on the Excess Profits Tax, if only for the reason that it will not have practical operation now and, if there are provisions in this part of the Bill which call for more consideration, it may be better for the difficulties to be stated, and then perhaps we can consider them before the Budget next spring. In those circumstances, if it meets with the general view, I should be prepared to adjourn our proceedings now. It will, however, be understood that we must get the Committee stage of the Bill to-morrow.

8.1 p.m.

Mr. Pethick-Lawrence

I shall offer no objection to that proposal. When we reached the point that we did reach an hour ago I thought it would have been reasonable to begin on this, but since an hour's fruitful discussion has taken place it is much easier to report Progress now. I do not think we shall have any protracted observations to make on the Excess Profit Tax Clauses, therefore I support the right hon. Gentleman's proposal.

Sir Frank Sanderson

I should like to ask one question arising on Subsection (2).

Mr. Pethick-Lawrence

On a point of Order. I understood the Chancellor of the Exchequer, though he did not say so, to be moving to report Progress. Either we are going to embark on this Clause or we are not.

The Chairman

The Question actually before the Committee is, "That the Clause stand part of the Bill." The hon. Baronet will understand that, if we do report Progress now, the Question before the Committee when it meets again to-morrow will be that this Clause stand part.

Sir F. Sanderson

I take it that we shall have an opportunity of discussing it to-morrow?

Question, "That the Chairman do report Progress, leave to sit again," put and agreed to. — [Sir J. Simon.]

Committee report Progress; to sit again To-morrow.

The remaining Orders were read, and postponed.

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