§ Order for Third Reading read.
§ Motion made, and Question proposed, "That the Bill be now read the Third time."
§ The Chancellor of the Exchequer (Sir John Anderson)I beg to move, to leave out from the word "be" to the end of the Question, and to add instead thereof:
re-committed to a Committee of the Whole House in respect of the Amendments 'the New Clause (Interpretation) and the New Schedule (Conditions as to Emoluments and Pensions)' standing on the Order Paper in the name of the Chancellor of the Exchequer.The House will recall that when this matter was debated the week before last, I gave an assurance that I would give careful consideration to the possibility of extending pay-as-you-earn throughout the whole range of Schedule E incomes. I have given, in the interval, very careful consideration to that question, and I have found not unexpectedly that a fresh problem emerges and gains importance as we mount the income scale. That fresh problem arises from the possibility of an adjustment between profits which are assessed under Schedule D and income which is assessed under Schedule E. Such adjustment, which would be quite practicable and quite lawful in a variety of cases, if no special safeguard were applied, might result in the loss of considerable sums of revenue. I will give an illustration in a moment which I hope will make quite clear just how this difficulty arises, but I may first, with advantage, make a few general observations. The first is this, that the possibility of what I may call a tax evading or avoiding adjustment increases in proportion as there is identity of interest between the proprietor of an undertaking and those employed in connection with the undertaking. An extreme case 546 is, perhaps, the case of the one-man business, and I will take that case for purposes of illustration, and I hope to be able to make the matter perfectly clear.Let us assume a business in which the managing director, being himself the principal proprietor, normally receives £2,000 a year as dividend from his investments and another £2,000 a year as remuneration. In regard to the dividend on investment, he pays tax on the basis of the previous year. At present, in regard to his remuneration he also pays tax on the basis of the previous year. When we pass to pay-as-you-earn, his position, so far as investment income is concerned, remains the same, but in regard to the remuneration under Schedule E, he will be taxed on the current year. Suppose that in respect of the particular financial year now current, the management of the business and the managing director agree between themselves—they being in fact identical—that for this year there shall be no distribution of dividends but that the remuneration of the managing director shall be increased from £2,000 to £4,000. In respect of the reduction of dividends, the Exchequer loses tax on £2,000. In respect of the personal income of the managing director, the Exchequer does not make a corresponding gain, because as a result of the transition, under pay-as-you-earn, from the previous year's assessment to the current year's assessment, the assessment for this financial year, if the transition takes place at the beginning of the next income year, will result in a Schedule E income for this financial year never being brought into assessment at all, either for Income Tax or for Super Tax. I hope I have made the position clear.
§ Mr. Bowles (Nuneaton)Supposing the managing director is paid on a weekly basis, what will happen?
§ Sir J. AndersonIf my hon. Friend will forgive me, that is a very special case, which should not be brought up for the purpose of obscuring the argument I am putting. I am dealing with the general aspect of this question in connection with a Motion for the recommittal of the Bill, leading up to my reasons for recommitting the Bill, for the purpose of considering the Amendments on the Paper. I am perfectly prepared 547 to deal with the case of the high income person who is paid on a weekly basis, but that is different.
§ Sir Herbert Williams (Croydon, South)Surely it is perfectly simple to overcome that case in exactly the same way as the same kind of transaction was overcome in connection with the Excess Profits Tax. In the Finance Bill of 1941 a provision was inserted—slightly amended on my representations—to the effect that if the main purpose of any transaction was the avoidance of tax, the transaction was wiped out. A similar provision would completely meet this case.
§ Sir J. AndersonI do not know why the hon. Gentleman interrupts me at this stage before I have completed what I have to say. I have not taken up the time of the House unduly; I am aware of the device to which he has referred, and I shall have to say something in a moment, which is relevant to that point. I gave an illustration explaining how the perfectly lawful avoidance of tax would be facilitated by this. The customary safeguard would not apply, I only want to add this to what I was saying. The average range over which such adjustments would be possible would, in practice, probably be very considerable, because not only are one man businesses directly involved, but any concern in which members of the proprietor's family are employed, might also resort to such adjustments for the purpose of escaping part of the very heavy burden of taxation. May I point out that the amount of income which would escape tax might, in certain cases, be on the top level of the Super-Tax scale where the accumulated rate of tax would be no less than 19s. 6d. in the £. Therefore, I think it must be clear that, if this plan is to be extended over the whole range of Schedule E, some suitable safeguard should be and must be applied.
As to the form of safeguard, I have gone into that matter as best I could with my advisers, and I think the question of the best safeguard is one which this House would very reasonably wish to debate. I am advised—I hope the hon. Gentleman who interrupted will give his attention to this—that the only safeguard which would be fully effective would be to levy a supplementary assessment on any increase of remuneration in respect of the 548 current financial year. That supplementary assessment would, if it were done in that way, cover not only special additions arranged for the purpose of avoiding taxation but additions which in fact would have been made in the ordinary course. The difficulty which arises—and on this the Inland Revenue Department have much experience—in applying any such remedy or safeguard is, as the hon. Gentleman the Member for South Croydon (Sir H. Williams) has suggested, that it introduces the element of motive and that is exceedingly difficult from a practical point of view. I am bound, therefore, to say quite frankly to the House, that the advice I have had is that the only really effective safeguard would be one of the kind which I have described.
In the ordinary course it would have been possible to put down the necessary Amendments in connection with this Bill, with the Resolution that would be required, and the whole matter fully debated. I should have no objection to that course, but there are exigencies of Parliamentary time, and there is, I believe, a real danger that the Bill might be lost if we took that course now. I have an alternative suggestion to make. As I explained in the last speech I made on this subject, there will have to be in the next Finance Bill various provisions dealing with the transition from one class of Income Tax payers to another in connection with these Lend-Lease proposals—I apologise for some slight confusion—these pay-as-you-earn proposals, and I propose that I should now give the House an assurance that I will include either in the next Finance Bill or in a special Finance Bill a provision for extending pay, as-you-earn, as the House would obviously desire, to the whole range of Schedule E taxpayers, with the appropriate safeguards, which the House will be in a position to debate. The arrangement I propose will make no practical difference, if the House sees fit to pass the next Finance Bill in which these provisions will be included, to the date at which the benefit of pay-as-you-earn is given to the taxpayers who are not included in the Bill as it stands, with the Amendments on the Paper, because it can perfectly well be arranged that the change in the cases not now covered should take effect from the same date, the beginning of the next Income Tax year. The Inland Revenue authorities would have no difficulty in making their arrangements in 549 that connection on the footing that the plan is expected to extend over the whole range.
I hope the House will agree that that is not an unreasonable suggestion, that it is a business-like course, that it will enable us to consider at reasonable leisure the extension of the plan throughout the range, and at the same time the safeguards or remedies which have to be applied. For that reason I am proposing that the Bill should now be recommitted for the consideration of the Amendments which were on the Paper in my name on the last occasion. There are one or two things I must add in order to make what I propose perfectly clear. I propose that the Bill to be passed now should extend Lend-Lease—these formula: are very confusing—should extend pay-as-you-earn not only to wage-earners, manual and non-manual, but also to salaried workers up to the £600 limit, and I do not think there is any reason why the special remedies that I am suggesting should apply below the £600 limit. It would be quite impossible to apply any remedy or any safeguard in the case of the wage-earner whose receipts vary from week to week, and I do not think that the risks of collusive evasion below the salary limit of £600 are sufficiently great to require special action. I suppose it would be possible when the Finance Bill comes before the House to include additional safeguards if it were thought necessary, but I do not at present think it will be necessary to deal with more than the new classes that are to be brought in by the extension above £600 a year.
A word as to the position of the Civil Service and certain salaried employees of railways who at present pay-as-they-go on the basis of the previous year's assessment. In those cases there will be no tax discharge, as is, I think, already understood by the House, and therefore I do not propose that the special safeguards that I suggest should extend to those cases. I only say that not because the House is being asked to commit itself now, but in order to make the provisional view I at present hold perfectly clear.
§ Mr. Glenvil Hall (Colne Valley)Would that not also apply to persons who have come into a new employment and were therefore assessed under the 550 present Regulations actually on the earnings for the year? When persons take over a new employment they are assessed in that year on that year, even though they may pay in arrears next year.
§ Sir J. AndersonThat is true. They pay twice on the same income. I think I am right in saying that it is not particularly relevant to the points I have been putting, but I think that will be covered by the transitional provisions which will be included in the next Finance Bill. For the reasons I have given I hope the House will be willing to agree to the recommittal of the Bill for the consideration of the Amendments.
§ Mr. Pethick-Lawrence (Edinburgh, East)My first words—and I imagine this would be the wish of the House as a whole—will be to thank the Chancellor of the Exchequer for listening to the expressed desires of the House and meeting us so substantially. I should like to set out the position as I see it. The original request to the late Chancellor was that manual wage-earners should pay on the principle of pay-as-you-earn. When Sir Kingsley Wood set out to carry that into effect he found it desirable to include in the Bill before us not only the manual wage-earners but certain other people paid on a weekly basis who were in a very similar position. That is how far the matter was carried in the text of this Bill. When he opened the Debate on the Second Reading the present Chancellor was already aware that there was a desire to extend the principle further, and he announced, before there had been any Debate, that he was prepared to extend the principle to all persons under Schedule E in receipt of under £600 a year. The Debates on the Bill showed unmistakably that Members thought that all persons under Schedule E should be included. The Chancellor has examined that proposal and, as I understand him, has accepted the principle completely, with one, not reservation exactly, but what he called safeguard. He is giving an assurance that the whole of the Schedule E taxpayers will be included in pay-as-you-earn. He has not seen fit to introduce that extension by Amendments actually before us, and there may be some people who have not entirely gathered from his statement that by the inclusion of those taxpayers in the next Finance Bill, or in a Finance Bill specially designed for the 551 purpose, all classes of Schedule E payers will be simultaneously affected by these provisions—that is, those who are affected by this Bill, those who will be affected by the Amendments which are to be incorporated in it, and all who will be brought in by the new proposals which the Chancellor has pledged himself to bring about early next year.
It may be asked why, if the whole thing could have been carried through in next year's Finance Bill, it has been necessary to introduce this Bill. I understand the answer to be that in order to enable the Inland Revenue authorities to get forward with the elaborate tables and other preparations required for implementing the provisions of the Bill so far as weekly wage-earners are concerned, it was desirable to get the approval of the House at this early stage. The extension of the principle to the whole of Schedule E taxpayers can be carried out in a Bill some time in the spring of next year, and they will therefore get the benefits of the proposal precisely at the same time and in the same way as those who are included in the present Bill or in the Amendments the Chancellor will move.
Our thanks are due to the Chancellor for having met the wishes of the House and, as far as I understand, having met them completely. Having said that, I come to the question of safeguards. Let me first say something regarding a matter raised by the Chancellor at the end of his speech. He said that he did not contemplate introducing these safeguards for persons whose incomes under Schedule E were under £600 a year, but he said that it might be possible to alter the Bill when it was introduced so that something with regard to safeguards could be done. I do not think we ought to put too Much on to that remark of the Chancellor's, because I want to point out that the House certainly could not move to bring them in, because that would be a case of the private Member imposing taxation, which of course he cannot do. Therefore, only the Chancellor of the Exchequer or the Government could bring in a proposal with regard to safeguarding. I understand that it is the intention of the Government to confine this matter to persons of over £600. The man under £600 need not be under any misapprehension that, by some action of this 552 House, the Bill will be extended to bring him into the new proposal.
The Chancellor of the Exchequer does not ask us to pronounce specifically on the particular safeguards that he intends to employ. I understand that they will involve the result that the over £600's do not get the full remission of the intermediate portion of tax, in the event of their salary increasing in the course of the two years, but, generally speaking, the failure to remit will be on a very small scale, unless there is an attempt to evade taxation. I do not think we ought to cavil at the safeguards just announced, and I shall have no hesitation in supporting this Motion.
§ Sir J. AndersonA point I ought to have made clear in my speech in relation to the extension to cover Schedule E taxpayers is that it will not extend to members of the Armed Forces, as it would be quite impracticable to make the necessary arrangements.
§ Mr. Pethick-LawrenceI accept the Chancellor's explanation, and I amend what I may have said on that subject.
§ Sir Herbert Williams (Croydon, South)I was glad to hear the statement made by the Chancellor of the Exchequer, but I want to make a complaint. The Amendments in the Chancellor's name were not circulated to hon. Members until Friday. Having regard to their nature, they ought to have been available while the House was in session so that hon. Members were in a position to table Amendments and have them printed to-day. I sent Amendments to leave out the reference to £600, but they do not appear. I make the protests that when this procedure is adopted hon. Members should be given ample opportunity to indicate whether they differ from the proposals of His Majesty's Government. The whole thing could have been done to-day, and I am not in the least impressed with the difficulties. The Department have had a fortnight's notice. I regard this as face-saving by people who made a mistake and have not been willing to own up.
In regard to embodying these matters in the next Finance Bill, that will not be good enough. It will be the ordinary Finance Bill after 5th April, but this scheme is to come into operation on 5th April, and we do not want people in a 553 position of uncertainty. We ought to have an assurance that the necessary Finance Bill containing the safeguards will be introduced so that it may receive the Royal Assent before 5th April. I hope it will have its Title so drawn that we shall be able to amend the provisions of the Bill we are now considering. I hope we shall have satisfactory assurances. If the Government had not been so stiff-necked a week ago, we should have been able to pass the thing properly, but they were obstinate. The sooner the Chancellor realises that he will be more successful as Chancellor of the Exchequer if he is less obstinate, the better. One of the reasons why the late Chancellor was successful was that he had a quick nose for public opinion. It is a great danger to have Ministers who have not been trained on the hustings, and we have too many of them decorating the Government Front Bench.
§ Mr. Summers (Northampton)I have no desire to echo the lecture to which we have just listened, but I want to echo the words of the right hon. Gentleman the Member for East Edinburgh (Mr. Pethick-Lawrence) in expressing appreciation of the way in which the Chancellor of the Exchequer has bowed to the wishes of the House. If we are to avoid imposing unreasonable safeguards on innocent people in our desire to impose them on assumed guilty people, we need time to consider the safeguards which the right hon. Gentleman has in mind. I hope that we shall endeavour to avoid people deriving benefit from the extension which they would not be entitled to receive, particularly those accustomed to receive annual increments. There will be great difficulties in dealing with the variety of Schedule E payers. Some are to be given seven months, while others, such as temporary civil servants, are to be deprived of the chance to even up by getting a tax holiday. I hope there will be an opportunity later to deal with transitional cases over £600 a year as well as under £600 a year. We are told that all Schedule E payers are to start from the same date, and naturally we rely upon the assurance given by the Chancellor of the Exchequer. I am sure that the approach of the Chancellor of the Exchequer to this matter will give widespread satisfaction.
§ Mr. William Brown (Rugby)I join with those who have praised the Chan- 554 cellor of the Exchequer, but I would ask him to deal with the anomalous position of State servants. I understand that he is not proposing to touch that issue. If we acquiesce in the Motion, we shall be deprived in Committee of an opportunity of discussing the matter. I shall be glad of guidance if I am wrong, but as I understand the position this Motion, if carried, means that the only Amendments we can discuss in Committee will be those that the Chancellor has put on the Paper, and none of those Amendments have the effect, which I and other Members desire, of giving a particular kind of treatment to State servants. Therefore we are put in this position: We could not put down Amendments ourselves to-day because until five minutes ago we did not know whether the Chancellor would meet the point or not. If he had met it, any Amendment on the Order Paper would have been superfluous. It is only now that we know he does not intend to agree, and it seems to me that if we pass this Motion, we are deprived of an opportunity of discussing the matter. Would it be in Order for me, Mr. Speaker, at this stage to comment on the merits of the case of Crown servants in the hope that even now, before this Motion goes through, I might induce a change of heart on the part of the Chancellor? If that is not in Order, perhaps you would be good enough, Sir, to advise me at what further stage of our proceedings there will be an opportunity of raising and discussing this issue, which affects nearly 750,000 people.
§ Mr. SpeakerI think the hon. Member starts on a false assumption. He assumes that nothing can be discussed but the Amendments which are down in the name of the Chancellor of the Exchequer. Surely it is open to the hon. Member to move a manuscript Amendment on the Motion for recommittal.
§ Mr. BrownWould it be in Order to move to add to the wording of the Chancellor of the Exchequer's Motion which appears on the Order Paper:
and to consider also the position of Crown servants under the Bill as it stands"?
§ Mr. SpeakerThat would not be an actual Amendment to the Bill. I could not accept an Amendment of that kind.
§ Mr. BrownWould it be in Order to move to add to the wording of the Chancellor's Motion: 555
and such other Amendments as Members of this House in the exercise of their sovereign discretion may suggest"?
§ Mr. SpeakerThe hon. Member has, I confess, rather puzzled me. The normal way in which to move an Amendment is like that on the Order Paper:
and in respect of the Amendments standing in the name of Mr. Douglas.I should have thought in an Amendment by the hon. Member stating:and in respect of the Amendment standing in the name of Mr. W. Brownwould possibly be accepted.
§ Mr. Douglas (Battersea, North)Would it be in Order for the hon. Member to move to amend the Chancellor of the Exchequer's Motion by leaving out all the words after "House" in the first line?
§ Mr. SpeakerHardly. That would really mean going back into the whole Committee stage again. I do not think I could accept an Amendment of that kind.
§ Mr. W. BrownShould I be right in assuming that I would have an opportunity on the Motion that Clause 3 should stand part or on the formal putting of the Motion for Third Reading on the Report stage?
§ Mr. SpeakerWhether the subject which the hon. Member wishes to raise will be in Order on the Clause is really not for me to say. As to whether it would be in Order on the Third Reading, I would say not, as it is not in the Bill. The hon. Member could move an Amendment to the Clause on the Report stage, and in this way he might have an opportunity of raising the subject he wishes to raise on the Report stage.
§ Mr. Hely-Hutchinson (Hastings)I only wish to support what the right hon. Gentleman opposite said in thanking the Chancellor for acceding to our request and in recognising the great difficulties which make these safeguards necessary. In the Bill as it now stands, and as it is proposed to be amended, and also as it is proposed that it should be extended, there will inevitably be a great many differences in treatment. Some people will get off a great deal more tax than others. I do feel that the only way in which we can hope to get this great reform through is for each one to consider whether his own 556 circumstances are to be tolerable under the provisions of the Bill and not whether or not someone is to get off more tax than himself. The second thing I wish to say is that while I do not fully agree with the tone of the observations of my hon. Friend the Member for South Croydon (Sir H. Williams), I did think that in his speech there was something of importance and substance. He urged that we should be able to debate the provisions of this Bill at some time before the close of this financial year. It is most important that we should do so, for since the Chancellor has now taken the plunge of agreeing in principle to extend the provisions of this Bill throughout the whole of Schedule E, I believe that the door has been opened to a wide range of simplications and modifications of Income Tax procedures, including the very procedure in this Bill. I believe that now we shall be able to take a new view, scrap the cumulative feature and substitute a much more simple system. I am prepared to give the Chancellor this Bill now in case the view I am putting forward now is wrong, but we ought now to have a chance of suggesting to him how to get rid of the very complicated provisions in the Bill itself.
§ Mr. Lewis (Colchester)As it was in response to a suggestion I made in the Committee stage that the Chancellor agreed to consider this matter, I wish to take this opportunity of associating myself with what has been said by the right hon. Member for East Edinburgh (Mr. Pethick-Lawrence) to-day. I agree with him most heartily that the House should be most grateful to the Chancellor for the way he has responded to the arguments put forward by Members on the Committee stage. I think back benchers should be grateful to him. We have before us in the next Session a lot of very complicated legislation, and it is a great encouragement to back benchers to take the trouble of trying to make the best contribution they can to the legislation of this House if they can feel that Ministers will act as the Chancellor has acted, listen to arguments put forward in the House, and try to amend the legislation where these arguments seem to deserve it, and not, as so often has happened in the past, come to the House with a pre-conceived idea and rely on the Whips rather than on argument in the House.
§ Mr. Hutchinson (Ilford)As there was on the Paper an Amendment in my name and in the names of some hon. Friends which had for its purpose the extension of this system to certain classes of salary earners, I desire to say that the assurance which has been given by my right hon. Friend the Chancellor meets the purpose which that Amendment had in view and which proved to be in accordance with the wishes of this House. There were two conditions which I think were essential if the wishes of this House were to be fully met. The first was that this system of pay-as-you-earn should be extended to all classes of Schedule E Income Tax payers without reference to the amount of their individual income. The second essential condition was that all classes of Schedule E Income Tax payers should be brought within this system at the same time. As I understand the assurance given by my right hon. Friend today, both these conditions will be met. Therefore it seems to me that the House ought not to quibble about the manner in which the Chancellor proposes to bring about that result. It is perhaps true, as the hon. Member for South Croydon (Sir H. Williams) said, that the Chancellor might have surmounted all these obstacles by a single impetuous bound. But that is not the way my right hon. Friend likes to act. He prefers to proceed more cautiously, step by step. Those of us who pressed this matter on him at the beginning ought not to be too critical of the way in which he proposes to meet our wishes. He has a great administrative responsibility in a matter of this nature, and certainly I myself, and I think those hon. Members who were associated with me in putting down the Amendment to the Bill in its original form, would not desire to criticise the way by which the result which he desired is to be brought about.
My hon. Friend the Member for Northampton (Mr. Summers) referred to that class of Schedule E taxpayer whose remuneration normally advances by periodical increments. I understood from what my right hon. Friend said that it would not be possible to separate that class of Income Tax payer from the class of Income Tax payer who could so adjust his remuneration from other sources as to bring it within pay-as-you-earn and within the scope of forgiveness of Tax which is an essential part of this system. It is 558 possible that on further consideration these safeguards which the Chancellor proposes to introduce may be so designed that they will not extend to that perfectly innocent class of person who without any intention to avoid payment of Tax will in fact receive an increment which will not under the safeguard come within pay-as-you-earn. If it is possible to exclude that class of taxpayer from the safeguards which it is now proposed to introduce I hope that the Chancellor will see his way to do so.
I express to my right hon. Friend my thanks for the manner in which he has met us in this matter. I desire to associate myself with everything that has been said by the right hon. Member for East Edinburgh (Mr. Pethick-Lawrence) and to say further that it will, I am sure, be a matter of satisfaction to all those whose wishes have been made known through the action of the back benchers, to know that the Chancellor has been so willing to listen to their desires and to give effect to them.
§ The Financial Secretary to the Treasury (Mr. Assheton)I am much obliged to my hon. Friends for what they have said about my right hon. Friend the Chancellor. I will apologise to my hon. Friend the Member for South Croydon (Sir H. Williams) for the fact that the Amendments were not on the Paper earlier. I am sorry that that is so; but, in the circumstances in which we were working, it was difficult. Some of the points raised by my hon. and learned Friend the Member for Ilford (Mr. Hutchinson) and my hon. Friend the Member for Northampton (Mr. Summers) will be more appropriately dealt with on the Bill which is to be introduced subsequently. More than one Member has asked whether a Bill will be introduced before the Finance Bill. If it is necessary to introduce a Bill to implement the undertaking which the Chancellor of the Exchequer has given, such a Bill will, of course, be introduced.
§ Mr. Hely-HutchinsonWill it be possible on the introduction of that Bill to Debate again the provisions of this Bill?
§ Mr. AsshetonI find that question too difficult for me to answer.
§ Question, "That the words proposed to be left out stand part of the Question," put, and negatived.
559§ Question proposed, "That the proposed words be there added."
§ Mr. DouglasI beg to move, in line 5, to add:
and in respect of the Amendments standing in the name of Mr. Douglas.If the Chancellor of the Exchequer is not going to resist this Amendment, I will not detain the House by arguing it.
§ Mr. AsshetonWe accept it.
§ Amendment agreed to.
§ Main Question, as amended, put, and agreed to.
§
Ordered,
That the Bill be re-committed to a Committee of the whole House in respect of the Amendments, the New Clause (Interpretation) and the New Schedule (Conditions as to Emoluments and Pensions), standing on the Order Paper in the name of Mr. Chancellor of the Exchequer, and in respect of the Amendments standing in the name of Mr. Douglas.
§ Bill immediately considered in Committee.
§ [Major MILNER in the Chair.]