CLAUSE 11.—(Assessment and collection of tax under Schedule E.) (Hansard, 15 August 1940)

§ Mr. Woodburn (Stirling and Clackmannan, Eastern)
I beg to move, in page 7, line 15, to leave out from "for." to "requiring," in line 17.
The purpose of Clause 11 is to make provision for the assessment and collection of the new form of Income Tax, but in doing so, it introduces something quite separate from that inasmuch as it carries through a revolution in the machinery of assessment and changes circumstances which have existed for nearly 100 years. The Clause gives the Government power to abolish, whenever they please or whenever they need to do so, all the local Commissioners who have been in existence for nearly 100 years, or to take away a very large part of their functions. The purpose of this Amendment and other Amendments on the Paper is to bring this change to the notice of the House, and to obtain some explanation of it and some assurances to the people concerned that this thing will be done in a fair and square manner. There is a tendency in legislation nowadays to 1012 do away with all outside arbiters. The courts of law give way to umpires. This Clause would enable the Government to do away with impartial arbiters and to have in their place partial arbiters. The Department would become judge in its own cause. There may be good reasons for doing this. A large part of the functions of the local Commissioners may have changed. In the early days many incomes were variable and subject to estimate and guesswork, but as time goes on, the incomes which are being taxed are more and more scientifically established. Therefore, estimating and judgment may be giving way very largely to calculation. But if this change is to be made, I suggest that a fair statement ought to be made to the House as to what is being done and the reasons for it. There ought to be some assurance to the people involved that it is not being done at the expense of servants of the State who have served the State well.

§ Sir William Davison (Kensington, South)
On a point of Order, Mr. Speaker. May I ask for your guidance as to whether there is to be a general discussion on the various Amendments on the Order Paper in the name of the hon. Member for East Stirling (Mr. Woodburn), my name and the names of other hon. Members, or whether they are to be called seriatim?

§ Mr. Speaker
All the Amendments to this Clause appear to me to deal with very much the same subject, and I think it would be convenient to the House if they were all discussed on the present Amendment.

§ Mr. Woodburn
Further to that point of Order. In the event of the discussion on my first Amendment not being satisfactory, I take it that the hon. Member for South Kensington (Sir W. Davison) and other hon. Members would have a right to move their Amendments.

§ Mr. Speaker
I shall put each Amendment separately.

§ Mr. Benson (Chesterfield)
There are two distinct points involved in the Amendments, Mr. Speaker. One is the question of the curtailment of certain functions of the Commissioners and the other deals definitely with the secrecy of the Income Tax, and I do not quite see how those two points can be discussed together.

§ Mr. Speaker
I do not propose to call the Amendment in the name of the hon. Member for Chesterfield (Mr. Benson)—in page 7, line 16, leave out "chargeable under Schedule E"—because it is outside the Ways and Means Resolution.

§ Mr. Benson
Further to the point of Order. I was not referring to that Amendment, because I had already heard that it was not to be called; but the Amendment now under discussion deals with certain functions of the Commissioners, whereas the Amendment in the names of my hon. Friend the Member for East Stirling (Mr. Woodburn) and myself—in page 7, line 18, leave out "any tax so chargeable" and insert "tax chargeable under Schedule E"—definitely has a bearing on the secrecy of the Income Tax.

§ Mr. Speaker
If the hon. Member dealt with that, probably it would be out of Order.

§ Mr. Woodburn
Continuing my remarks, I should like to know, first, what is to be done, and, secondly, how it is to be done. What assurances are to be given to these servants of the State that if changes are made those changes will be made in such a way as not to penalise good servants of the State? I should be the last person to say that institutions should be defended simply because they exist, but I believe that the Chancellor himself, some years ago, defended this case when it was once attacked in the House. He has now reversed the usual principle; he is now the gamekeper turned poacher. I ask the Chancellor to give us some assurance that this provision is not meant simply as a general attack on something that is being done properly, and if it is an attack on something that is being done improperly, I ask that we should be told what are the facts and the circumstances and by what methods it is proposed to deal with them.

§ Sir W. Davison
I beg to Second the Amendment.
When the Finance Bill was considered in Committee, I moved an Amendment to Clause 11 to omit the power for assessments to be made by regulations by the Commissioners of Inland Revenue, and I pointed out that any such power given to a Government 1014 Department would cut at the root of the whole principles on which Income Tax had been assessed for the last hundred years by the Commissioners of Income Tax. In replying, my right hon. Friend the Chancellor of the Exchequer gave a very definite assurance. He said: There is no question of making any alteration, or in any way putting an end to the work of the Commissioners of Income Tax.—[OFFICIAL REPORT, 8th August, 1940; col. 476, Vol. 364.] He said, further, that if this was not clear in the wording of the Clause, he would have words inserted before the Report stage which would make the point clear. It was to carry out that assurance that the Chancellor put down on the Paper an Amendment—in page 7, line 24, at the end, insert: Provided that the said regulations shall not affect the powers or duties of the general or other commissioners as respects the signing, allowance or rectification of assessments or determination of appeals. The words of that Amendment down to the word "commissioners" seem to me to carry out fully the assurance that was given by the Chancellor, but the further words: as respects the signing, allowance or rectification of assessments or determination of appeals. seriously circumscribe and limit the carrying out of the assurance. I would draw attention particularly to the fact that one power which appears to be taken away by these limiting words is the power of assessing, which is now to be given to the Commissioners of Inland Revenue, and apparently taken away from the general commissioners and their officials, who have a knowledge of the facts and circumstances in the various districts which will not be in the possession of Inland Revenue officials. I will give one or two examples of the local knowledge which is more than ever required to-day, owing to the speed at which it is desirable that assessments should be made. First, inspectors of taxes are frequently changed without the possibility of acquiring local knowledge. Secondly, if employers default in making returns of employés, the assessor is needed to obtain the information. Thirdly, if an employé has two employments, the assessor's knowledge is wanted as only one employment would appear in the employer's return. Fourthly, in cases of difference between employer and employé, the assessor must 1015 decide between them. Fifthly, in all cases of estimate the assessor's knowledge must be called in. For these reasons, I submit that it is more than ever necessary that the Commissioners and their assessors should be maintained and the power should not be transferred to officials in a Government Department. I hope that my right hon. Friend the Chancellor will accept the Amendment on the Paper in the names of the hon. Member for East Stirling (Mr. Woodburn) and myself to leave out from the word "commissioners" to the end of his Amendment. This would make it clear that assessments would still remain the duty of the Commissioners and their officials.

§ Mr. Benson
I think that as the Chancellor listened to the last two speeches his breast must have swelled with pride. My hon. Friend the Member for East Stirling (Mr. Woodburn) referred to Clause 11 as bringing about a revolution in our Income Tax machinery and the hon. Member for South Kensington (Sir W. Davison) described it as cutting at the root of the whole principles on which Income Tax had been assessed for the last hundred years. The fact is that the Clause is a very tiny and piecemeal attempt to bring the machinery of Income Tax assessment in a large' part of the country up to the standard which obtains in other parts of the country.

§ Sir W. Davison
It makes a change.

§ Mr. Benson
It makes a change in that it brings the machinery of assessment in some parts of the country up to the standard which obtains in other parts. That is a very necessary change. It is proposed to allow the inspectors of taxes to do the work which in some parts of the country is now done by the clerk to the Commissioners. That work is purely routine clerical work. The clerks to the Commissioners and the Assessors, to whom the hon. Member for Kensington (Sir W. Davison) referred, have no special technical knowledge as compared with the inspectors of taxes. Nor have they the trained staff to deal with the real work of assessment. They merely total up the books prepared by the inspectors of taxes and do copying work within the scope of any office boy. Unfortunately, in order to do this purely clerical work 1016 they have to take away the assessment books, with the result that these go backwards and forwards six and seven times a year. As a consequence the work of the inspectors is held up, and there are delays in repayment, in adjustment and assessments. It is the taxpayer who suffers.
As a matter of fact, this matter has been under consideration for many years, and it was considered by the Royal Commission on Income Tax in 1919, whose report the hon. Member for South Kensington should read. Let him examine the evidence of Mr. Copley Hewitt, Clerk to the London Commissioners, on this point, and his cross-examination by Sir Josiah Stamp and Sir William McClintock. It was the most pitiful and painful exhibition I have ever read. They treated Mr. Hewitt like a small boy treats a fly. They pulled off his limbs one after the other until only the bleeding corpse was left. I have never seen a more terrible cross-examination in my life. They finally reported that the whole system was archaic and obsolete. It is this system which the hon. Member for South Kensington and my hon. Friend the Member for East Stirling (Mr. Woodburn) propose to retain, and which they say if it were abolished would introduce a revolution. But that revolution has taken place already in half of the country. The system has been retained because it is a vested interest of the Clerks who pull wires to defend it whenever it is questioned.
The right hon. Gentleman's advisers have come to him and said that now that he is expanding the area of Schedule E, unless it is taken out of the hands of the Clerks to the Commissioners, he will get no tax. The machinery will break down. Instead of doing this piecemeal, he ought to have abolished these clerical functions of the Commissioners and put Income Tax assessment on a sane basis. The real function of the Commissioners is to hear appeals, and that will not be touched. I come from Manchester, and I know that the system proposed under Schedule E applies to the whole of the Schedules. It may surprise the hon. Member for South Kensington to know that the Kensington area is notorious in Inland Revenue circles for delay and arrears, and this undoubtedly is due to the bottleneck—the Clerk to the Commissioners.

§ Mr. Woodburn
I think that the hon. Member does not fully appreciate that Clause 11 would in fact take away that right of appeal, or at least give power to make provision for taking away that right of appeal. Therefore the whole purpose of the Amendment is to obtain a statement from the Chancellor as to what is being done. Even a minor revolution like this should not be carried through by small words put in a Finance Bill incidentally instead of openly.

§ Sir W. Davison
The hon. Member for Chesterfield (Mr. Benson) entirely supports the contention of the hon. Member for East Stirling (Mr. Woodburn) and myself that by a side issue the principles which have governed the collection of Income Tax in this country for years, and which have been the admiration of the world for the smooth way in which the work has been carried into effect, are being undermined. In any case there is no necessity to do it here, because the assessments for the present year have already been made.

§ Mr. Benson
There is no principle involved. It is the ordinary clerical work involving weeks and weeks of delay. The work is a nice little sinecure for those who carry it out, and I hope the Chancellor will resist the Amendment.

§ Sir K. Wood
Perhaps the House will allow me to present the case as I see it, and I do not think I shall get extremely heated about the matter. Clause 11 is introduced into the Bill to make a change which has been generally approved by the House with regard to the deduction by employers of the wages of the employés both for the convenience of the employés and for revenue. It is under these circumstances that the Clause has been drafted, and it is for that particular purpose only. I may say, at once, in dealing with the Amendment of the hon. Member for East Stirling (Mr. Woodburn) that if one sought to delete in the first part of Clause 11, the words for the assessment and collection of tax chargeable under Schedule E including in particular provisions for requiring … it might well be argued that it would be open to any employé to object to the employer making deductions in November on the grounds that the tax was not due until 1st January. That would up- 1018 set the whole scheme, under which the tax due in January will be deducted over the six months from November to April. Without interfering in any way with the existing powers of the Commissioners of Taxes so far as the taxpayers are concerned, it is important that this new scheme should work efficiently and quickly. It is therefore necessary, as was indicated by the hon. Member for Chesterfield (Mr. Benson), to make certain rearrangements as to clerical work, and to deal with what I am afraid I must call, without undue heat, the present antiquated and cumbersome procedure, so as to enable the work to be undertaken in the shortest possible time. If anyone looks at the Income Tax Acts, they will find set forth in a variety of details the exact procedure to be followed, and the way in which certain routine work is to be performed. In that respect certain duties are cast upon the Clerks of the Commissioners, and it is in this connection, and this connection only, that a change is to be made. Inasmuch as these duties are on the Clerks of the Commissioners, who are acting for the Commissioners themselves, it may well be said these are the duties of the Commissioners.
The hon. Member for South Kensington (Sir W. Davison) criticised my Amendment, and said that it should stop at the word "Commissioners." If I did so, it would defeat the purpose of the small change we propose to make. Consequently, if both Amendments were accepted, it might, and I will put it no higher than that, in certain areas result that the notice might not reach the employers in sufficient time for them to make the deduction of tax at the commencement of November, and we might then have to face the breakdown of the whole of this machinery which every part of the House desires to be put into operation at once. In that respect both employers and employés would be very adversely affected, and I do not think anyone would desire that to be done. There might also be, as a result, widespread complaints, because in one part of the country things might not go smoothly compared with other parts. I wish to make it plain that my Amendment on the Paper, and the Clause in the Bill, in no way affect the powers or duties of the Commissioners in regard to the signing, allowance or rectification of assessments or determination of appeals. 1019 These powers are, in fact, the main functions of the Commissioners. The other matters with which we are dealing to-day are matters of a very minor order, and deal with procedure.
I want to make it absolutely clear, because a number of people are concerned in this—and I do not criticise their work, because in many respects they are doing an excellent job—that the Regulations to be made by the Commissioners of Inland Revenue in this Clause cannot, in the first place, affect the interests of the taxpayer—that is the existing function of the local Commissioners of Income Tax, and the matter of signing and hearing appeals will be retained as is made abundantly clear in the Amendment I have put on the Order Paper. Assessments will continue to be signed and allowed by the local Commissioners, who will, of course continue to deal with appeals, and the local Commissioners' powers as regards the quantum of assessment and the rights of taxpayers in appeals are fully safeguarded. I had representations made to me this morning by some old friends of mine—the assessors. But this will not affect the work of the assessors except in some minor clerical way. We shall, of course, continue as before to take full advantage of their local knowledge. On the other hand, we are taking steps, which, I believe, the House will support, to avoid delays of the kind I have indicated, so that when the employers are called upon to play the part which we are asking them to do—and I am glad to say that I have had no complaints or representations on the matter from employers in this country, whom we are asking to carry a considerable burden in this matter—they shall receive their instructions punctually and as accurately as is humanly possible. That is the least thing we can do for the employers when they play their part. That is the main purpose of this Clause. It is a wise and advisable step to take in order to see that this scheme goes forward with the greatest possible chance of success.

§ Mr. Woodburn
What is to happen to any clerical staff of these assessors in the event of the Inland Revenue taking over the whole job?

§ Sir K. Wood
I hope that in cases like that we shall be able to arrange for the 1020 staffs to be transferred to the other office. We shall endeavour to do that, and conversations have been proceeding very smoothly on the matter, and, I think, the necessary arrangement can be made to the mutual satisfaction of each side.

§ Sir W. Davison
I understand that the addition of the words: the signing, allowance or rectification of assessments or determination of appeals will not involve taking away from the Commissioners their powers of making assessments and rectifications and giving them to the Commissioners of Inland Revenue.

§ Sir K. Wood
I put that point to the Solicitor-General, and he advised me that when they sign they take authority for the assessments.

§ Mr. Pethick-Lawrence (Edinburgh, East)
The way in which the Chancellor has dealt with the matters in this Clause is fully in accord with the position as I have understood it, and I hope that in a subsequent Finance Bill he will consider whether the change mentioned by my hon. Friend the Member for Chesterfield (Mr. Benson) can be made. When we come to the Third Reading perhaps the right hon. Gentleman will give me an answer to the question whether he has considered the method, which was talked about in an earlier stage, by which the deductions by employers from their employés will be credited to a special fund at the bank. This will save any danger of leakage and also save time.

§ Mr. Woodburn
In view of the explanation given by the Chancellor, I beg to ask leave to withdraw the Amendment.

§ Mr. Benson
I beg to move, in page 7, line 18, to leave out "any tax so chargeable," and to insert "tax chargeable under Schedule E."
The effect of the Amendment is to limit the power of the Commissioners to make regulations giving the employers power to deduct more in tax than will be appropriate to Schedule E. Under the Clause it seems to me that employer could deduct any tax.

§ Sir K. Wood
I am advised that that is not so. This applies only to assessment for tax under Schedule E, and that will 1021 be the only matter subject to deduction. If an employé has any other income, that will be collected in the usual way and not through the employer.

§ Mr. Benson
At what rate will Schedule E be deducted? That is the difficulty, because by simple calculations from the rate of deduction an employer could calculate an employé's income.