HC Deb 29 June 1943 vol 390 cc1534-44

Provision (1) of No. 16 of General Rules applicable to Schedule E in the Income Tax Act, 1918, shall cease to have effect in so far as it results in the joint income of a husband and wife being assessed to tax at a higher amount than would be the case if each were assessed to tax separately as unmarried persons.—[Sir I. Albery.]

Brought up, and read the first time.

Sir Irving Albery (Gravesend)

I beg to move, "That the Clause be read a Second time."

In rising to move the new Clause which stands in the name of my hon. Friend the Member for Faversham (Sir A. Maitland) and those of certain other hon. Members, I should like to explain that, although my name is not given on the Order Paper to-day, it appeared with that of several other Members of all parties, including some of the lady Members, when the proposal was first put down. I would like also to draw attention to the fact that under the present procedure, the Order Papers giving notice of the new Clause reached very few Members of the House, which I think is rather inconvenient.

The question of married persons' In-come Tax is a very old subject and from 10 to 15 years ago it was constantly being raised in this House at Budget time. I want to make it clear that I am not raising it as a defender of the rich or in an en- deavour in a time of national stress—I do not really imagine that the proposal could be accepted at the present time—to help a certain class. In fact I think that something on these lines could only be accepted eventually with certain other readjustments. There are many people of comparatively humble means who would benefit if these adjustments were made. I want very briefly to outline the history of this taxation. The taxation of married people jointly in the present manner appears to have come in about 100 years ago, when Income Tax was, I think, sixpence in the £. In subsequent Budgets this joint taxation has been protested against, and obviously, owing to the changed status which has come to women in recent years, they are not likely to tolerate the present arrangement much longer.

When the argument for change has been put on previous occasions there have usually been three main replies. The first reply used to be: "You have the advantage of a joint household. The expenses are less and therefore it is proper that you should make a bigger contribution to taxation." That does not seem to be logical now, especially since we have been obliged to introduce a marriage allowance because thus you get two diametrically opposite situations. The next argument put up against it, which was used by the present Prime Minister, when Chancellor of the Exchequer, was, "We cannot do this at present, and in any case, there is no hardship." There was not much hardship then. I do not know what the Income Tax was then; it may have been 2s. or 3s. in the £, but we have a very different state of things to-day. We have an Income Tax of 10s. in the £ and Surtax on top of that, and when you get into the higher scales there are certain people who have only a few shillings left out of the 20s. You may think that these people are not to be pitied, but that is no reason why, if we must levy very heavy taxation, it should not be done fairly. Obviously, the position of married persons would be much better if they were equitably taxed and individual men and women had separate assessments. The last and generally the overwhelming argument, the one which will, no doubt, be put to-day against any amendment of the law being accepted at the present time, is the question of money. There may be additional difficulties, such as administrative difficulties, and, as I say, I do not think the Chancellor of the Exchequer would be in a position to accept this Clause, or even one more suitably framed at the present moment. But when we want to get things of this kind rectified we have to give notice at an early date.

I do not suppose that if the war goes on it could be done next year, but I hope that it can and will be done in the first post-war Budget. The present position will then need a good deal of revision. The first Budget which is introduced into this House in which there is some reduction of taxation should, before other things, take into account injustices and any cases of inequitable taxation which at present exist. It is in that direction that the first remission of taxation should go, and, with a view to getting things going again, I trust it will be possible to put right these inequalities and do something over and above that to stimulate generally the trade and industry of the country. When such steps are taken, it will be a matter for consideration whether there is any case for the married allowance at all. When people get married the woman, if she has income, should togther with her husband get personal allowances, and, if she has no income, get dependants' allowance. There does not appear to be any justification for the difference between personal allowance and dependant's allowance. Children's allowances ought to be increased as soon as possible, especially in view of the higher living costs. If these are increased there does not seem to be any really valid reason for the marriage allowance as such. I hope that the Chancellor of the Exchequer will have very serious consideration given to this matter; that to-day he may say, at any rate, agree that the matter merits very serious attention and that in better times, perhaps in the not too distant future, some revision of the tax may take place.

Sir Adam Maitland (Faversham)

I wish to support what has been said by my hon. Friend the Member for Gravesend (Sir I. Albery) and also to say that, apart from the right hon. Gentleman himself, nobody would be more surprised than I, if the Chancellor of the Exchequer accepted this Clause to-day. It is always well to be frank with the House. My hon. Friend was characteristically honest in his presentation of a very difficult case. I would suggest one reason why the Chancellor of the Exchequer should support the suggestion that at any rate there should be consideration of this matter. He is a good-living man and I suggest that this matter should be considered on grounds of public morality. Rule 16 in the Income Tax Act, 1918, dealing with procedure lays down the special procedure that: A married woman acting as a sole trader, or being entitled to any property or profits to her separate use, shall be assessable and chargeable to tax as if she were sole and unmarried. And there is the proviso that the profits of a married woman living with her husband—these are the words I wish to emphasise, shall be deemed the profits of the husband, and shall be assessed and charged in his name. I suggest that my right hon. Friend the Chancellor of the Exchequer is carrying on a procedure which is likely to induce a husband and wife, in these days of high taxation, to live apart. The Minister of Health is concerned with the increase of the birthrate which also may be affected on financial grounds. I suggest that the Chancellor should give attention to this matter. My hon. Friend the Member for Gravesend very properly pointed out that whatever may have been the views of some of our lion. Friends of the Labour Party in years gone by, this cannot to-day be regarded as a matter affecting only the richer section of the community. I would remind my hon. Friends that the law as it stands to-day, makes liable for taxation the earnings of every working woman and these are taken into assessability to tax as part and parcel of the income of her husband. Vast numbers of people are now engaged in industry and it means that we have a system of taxation which bears harshly on the people with lower incomes.

This is a wide subject, and because of the extension of the range of Income Tax which has been made, I think it is impossible on financial grounds for the Chancellor to accept this new Clause. Nevertheless, I suggest, that it is not the introduction of a new principle because I believe the injustice of the present system has been recognised by the fact that an allowance has been made£I think it is £50, per annum—in the case of the earnings a woman receives, quite apart from her husband's earnings. If the Chancellor cannot "go the whole hog," I suggest that he should give some attention to the question of increasing that allowance. My hon. Friend referred briefly to the history of this taxation. We have accepted much of the practice and principle of assessment under which, in days when the tax was low, if it was unfair, it was unfair to a mild degree but which now, when there is such a high rate of taxation, imposes a real hardship. In view of the fact that taxation is so much higher, I hope the Chancellor will direct his mind to the possibility of increasing the allowance.

Mr. Lipson (Cheltenham)

I rise to express the hope that the Chancellor will disappoint the expectations of my two hon. Friends who have moved this new Clause and that he will be willing to make some concession. They have quite properly drawn attention to a matter in our taxation system which is unjust. I was sorry to hear that they have so little faith in the Chancellor as to doubt whether an injustice which has been made clear to him will not be put right. This injustice has existed, we have been told, for 100 years, and the question might well be asked: "Why raise it now?" I would remind the House of the fact that because a grievance is an old one that does not make it any less of a grievance. The fact that it has been allowed to go on so long is an additional argument for the view that the removal of that grievance is long overdue. Further, there are circumstances at the present time which make this grievance felt very much more than it has been in the past. The number of people who were concerned with this joint assessment in the past was nothing like so numerous as it is to-day. I do not know whether the majority of married women are earning money to-day but I think we are very near that position. It is quite likely that financial conditions in the future will be such that an increasing number of married women—possibly in the not distant future an overwhelming number—will be earning, and, therefore, will be penalised by this joint assessment. That being so, the Government ought to sit up and take notice.

It seems to me very unfair to-day, when two women are working side by side, one married and the other unmarried, both having responded to the patriotic call to work in war-time, that the married woman, simply because she is married, should be left with a smaller proportion of her earnings than the Unmarried woman. That is bound to cause dissatisfaction and a sense of injustice. I suggest to the Chancellor that when taxation is as high as it is to-day, it is more than ever necessary to convince people that that taxation is equitable in its incidence and that every effort will be made to remove anomalies. The more this joint assessment of husband and wife is studied and considered the more unfair and unjustified it is. Therefore, I ask the Chancellor to give us, at least, some definite assurance that he is alive to the urgency of the question and will be prepared to take action to remove a grievance which has existed for too long and which ought by now to have been removed.

Mr. Clement Davies (Montgomery)

I am glad that this question has been raised because it is another instance of the way in which we go on year by year tolerating anomalies. It is high time that the whole of our Income Tax position was inquired into and a new set of rules brought in which would allow us to be treated equitably all round. The reason why we have this anomaly to-day is that when Income Tax was first levied the law of this country regarded woman as man's chattel; all her property, on marriage, became the property of her husband. She had no property of her own. Fortunately this House and another place changed that law, as long ago as 1884, by the Married Women's Property Act. Women were then regarded, so far as property was concerned, as separate individuals, but when the next Budget came along no notice was taken of the change. The woman's property, for Income Tax purposes, was regarded as her husband's. I am glad that the hon. Member for Faversham (Sir A. Maitland) made his appeal on the grounds of morality.

May I direct the attention of the Chancellor to an excellent series of reports which has been edited by that good and sound lawyer the senior Burgess for Oxford University (Petty Officer Herbert) who, years ago, called attention to this anomaly and its inequity? The Chancellor may perhaps remember that there was a very respectable professor and his wife who were charged with having misled the court and abused the process of the Court. The position, apparently, was that these two people having been married for many years, and having been regarded as the most happily married couple in the whole neighbourhood, suddenly startled that neighbourhood one day by being parties to divorce proceedings. I forget whether the professor started the proceedings against his wife or vice versa, but the suit was undefended, the decree was made and at the end of six months was made absolute. Then, to the joy of everybody, the professor and his wife continued to live as happily as ever afterwards. The point was that the divorce was secured in order to separate the income of one person from the other so that there would be two forms for Income Tax instead of one. The court was asked to say that this was iniquitous and misleading. The point of all this, as has so often been brought to the attention of the public by the senior Burgess for Oxford University, is that here was an inequity which ought to be put right. The Chancellor is to inquire into the incidence of taxation and into a proposal as to whether we should pay as we go and I hope he will decide in favour of the new form. When he does so, I hope he will also decide that these inequities must be removed so that we all pay a fair share and no more.

Mr. Pethick-Lawrence

I know that there is anxiety to finish this part of our proceedings fairly rapidly and I will endeavour to be as brief as I can. I think there is a great deal of misunderstanding with regard to this question of tax on married persons. In the speeches which have been made I do not think full allowance has been made for the very great changes that have taken place in recent years regarding the whole question. Thirty years ago, which I was working in association with women who were trying to get the vote, this problem was brought forward and I think I was the first person to describethe peculiar taxation which prevailed then regarding married couples as a "marriage tax." A marriage tax there was on practically all couples where the wife was in receipt of income. There was a marriage tax and a parent tax and that continued for a very long time. There was hardly anything to be said on the other side except that the rate of Income Tax was very small and that in a large number of cases the amount paid did not amount to very much. In its wisdom this House, being seized of that idea, thought it desirable to introduce an allowance on account of the wife and also about the same time allowances for children. By means of those allowances the real marriage tax was to a considerable extent swept away. To-day a married couple with children are, as a couple, considerably better off in some respects than two private persons who are unmarried. Therefore, there has been a good deal of misapprehension.

But that is not quite the whole picture. At the time this point was raised there was another grievance—the unfair status in which a wife is placed compared with her husband. The hon. Member for Faversham (Sir A. Maitland) recalled the precise wording of the rule under which this continues to exist and he must have startled some Members when he read the old-fashioned words that were used at a time when a woman was the chattel of her husband and her income was simply regarded as his. The fact to-day is that a very large part of the injustice to married couples with small incomes has been swept away, but certain parts still remain in certain cases, and when you come to people with high incomes, more particularly those who pay Surtax, there is a considerable tax on marriage. If we deal with this first of all, I am rather doubtful whether the House would be willing to say that any well-to-do man could settle part of his property on to his wife and therefore the couple, as a couple, could escape a great deal of their Surtax. Therefore, I am not quite sure that this is the right method of dealing with the case. I think the Amendment was on the Paper on the Committee stage in a form in which it proposed to have the taxation of married couples in all cases precisely as if they were single persons.

I asked the Chancellor of the Exchequer some months ago what would be the effect on the revenue if the taxation of married couples were in all cases on precisely the same basis as if they were single persons, and the right hon. Gentleman pointed out that there would be an immense increase in the taxation of persons united in marriage because, owing to the allowance that is given to the wife at present, married couples pay, generally speaking, very much less than they would do if they were assessed entirely as single persons. I think this is one of the matters which, when the appropriate time comes, should be investigated, and I hope that another Commission of some kind will sit on the Income Tax, and the whole of this question of the taxation of married couples is one of the points that ought to be considered and amended. It will then have to take into account, not only the position of the married couples qua married couples as against single persons, but it will also have to review the relationship between partners of the marriage as far as Income Tax is concerned. There is no doubt that that is in an unsatisfactory state at present. In some cases the husband pays all the tax—improperly it may be; in some cases the wife is paying the tax and is entitled to recovery and can only get it through her husband, which is most humiliating for her. When it comes to surtax, the husband has to pay the whole of it, and the wife can only be called upon for her contribution in the first instance if she is willing to pay it. Although I believe a division between the two could be enforced in a court if necessary, it is very rarely that that will ever be done. Therefore, the whole question of the taxation of married couples is in a very anomalous position. It needs emendation and I hope an inquiry will be held after the war with a view to having that emendation.

But I could not support the Clause in its present form. It would be quite impossible for a married couple to have all the advantages and none of the disadvantages of being married, which is what the proposal means. If you wont further and carried the Clause in the form in which it was originally put down in Committee, which I imagine was out of Order, you would get something which would be considerably to the disadvantage of married couples. This is a very complicated and difficult question, because married couples between themselves live and work and earn money in entirely different ways. In some cases you have one spouse doing all the outside work. The other may either be a dependant or, mooch more frequently she is not a dependant at all but an active worker in the house, but she is not gainfully employed, and therefore appears to be in the nature of a dependant when she really is not. Then you get the case where the woman goes out to work and earns money, and at the same time you have the Income Tax authorities treating the two incomes as one, the husband being responsible for his part and the woman paying on her earnings and yet not having any easy method of recovering as she would have if she were a single person. There is an infinite variety of ways in which a married couple carry out their mutual financial arrangements, and that makes the problem exceedingly difficult. I hope, when the time comes, these points will be borne in mind with a view to making a new regulation with regard to the taxation of married couples which is not only equitable as between the married couple and two persons not in wedlock, two brothers, or relatives or brother and sister or whatever it may be, but also making the payment of taxation between the two individuals forming the married couple just in the first instance and not derogatory to either party to the marriage.

The Attorney-General

My hon. Friends who moved and seconded the new Clause were so clearly conscious of my right hon. Friend's difficulties in making a change of this kind at this time that I hope nothing I may say, to some extent in criticism of the proposal, will be regarded as in any way provocative. I agree with them that this raises an important and difficult question. In the first place, I think it right that I should put before the House what in fact the present position is. A proposal that in all cases husband and wife should be assessed as if they were not married would inflict a great extra burden on the majority of people within the smaller range of taxpayers. The recent increase in the wife's earned income allowance involves a lower tax than if husband and wife were treated as separate in all cases where the income is earned, unless the total earned income is more than £1,500. So that, in so far as you have in mind joint earned incomes, the present law is more favourable to married couples than if they were treated separately. My hon. Friends did not really press the Clause but raised it in order that it might be considered. I think it wrong to use language which suggests that this is some patent anomaly and injustice which has been allowed to continue to exist solely through the lack of enterprise of the Chancellor of the Exchequer. The Royal Commission on Income Tax very carefully considered the problem and came to the conclusion that on the whole the present system of assessment should be preserved, and it may well be that, if there are improvements to be made, they should be made within the existing basic principle rather than by abandoning that principle and introducing the principle of separate assessment as if the parties concerned were unmarried.

I do not agree with my hon. Friend the Member for Gravesend (Sir I. Albery) that the principle of a single assessment and the marriage allowance are logically inconsistent with each other. I should have thought the opposite was the case, and that, if we have the single assessment principle, logically you ought to have, as we have, the wife's allowance. If you had a separate assessment of the husband's and wife's income, treated in all respects as if they were unmarried, the marriage allowance logically would have to go. As my hon. Friends made it clear that they did not really press the Clause, the financial consequences of which, particularly in the higher ranges of income, would be very considerable indeed, perhaps I have said enough in alleviating some misapprehensions which may have existed in regard to incomes up to £1,500 and also by agreeing with the right hon. Gentleman that the question is not a simple one and that a final satisfactory solution may not necessarily be on the lines of separate assessments.

Mr. Pethick-Lawrence

Will the right hon. and learned Gentleman also agree with what I said that the position between the parties to the marriage needs very careful revision?

The Attorney-General

One could not consider the wider question without considering that as part of it.

Question, "That the Clause be read a Second time," put, and negatived.