§ Mr. I. J. Pitman
I beg to move, in line 1, after "tax," to insert:at the rates applicable to earned income.The purpose of this Amendment is to ensure that the taxation which has to be borne on receipts by men and women under the family allowances scheme and under the National Insurance scheme shall be taxed at the more favourable rate, and not at the more favourable rate to the Treasury. I put down a Question on this subject, and I received an answer from the Chancellor to the effect that he did not wish to anticipate his Budget statement. I listened carefully, and have looked through his Budget statement, to find out if it gave me an answer to that question. So far as I know there was no answer to it. If I have overlooked it, I hope that the Financial Secretary will stop me at this point and save me from taking up the time of the House. From his silence, I gather, it is intended that the rate shall be at the unearned income rate, and that I must continue to speak on this Amendment.
The difficulty that the Chancellor is up against, I imagine, is not very great in making this concession, because in the fiat place, in my estimate, over 99 per cent. of the people who will benefit under these two great schemes will be wage-earners of the very kind who, Members on both sides of the House would agree, should pay the lowest rate of tax on benefits of this kind. In the second place 2796 we must remember that these benefits which they will have provided, will have been out of their earnings—out of their contributions of 4s. 7d. a week, which will be paid to the State. Again we must bear in mind that the majority of these payments will no doubt bear some tax, even when the exemption rate is raised. Single men and women are likely to have a low exemption rate, even for many years to come, and if the Chancellor likes to calculate the figures at which tax will have to be paid on benefits of this kind, he will be surprised how many millions of people in this country will he involved by this Amendment.
I would like to refer the Financial Secretary to column 1833 in the Chancellor's Budget speech, where he very clearly shows the linkage between the deductions which he is allowing everybody to make from their taxable incomes on account of their contributions on the one hand and the taxation of the payments which are going to be paid out under these schemes. His actual words are:It is a necessary counterpart of this proposal that, apart from lump sum payments, such as death and maternity benefits, …Incidentally I should say that maternity benefits were earned, if anything is earned.… all benefits, and not merely some, as now, should be assessed for Income Tax." —[OFFICIAL REPORT, 9th April, 1946; Vol.421, c. 1833.]Clearly, the taxation of these benefits is linked up with the remission of taxation on the contributions when they are made by the taxpayer. It is after all a form of tax which the contributor is already paying.
So far as I can see, there are only minor difficulties and I do not know what is holding the Chancellor from giving this concession. The only reason that I can see, and that I at once admit, is that some of these people may at some stage of their life be getting remission for their contributions against unearned income and, therefore, it may be argued that when they come to benefit they should pay also at unearned income rates. Surely, the numbers of such cases will be very small indeed? I should be very surprised if these people are not either attracted or induced, or in some other ways influenced, to go to work; in which case their benefits will 2797 be an addition to an earned and not an unearned income. It seems to me to be only fair that even their contributions when received should be taxed only at the lower rates and not at the higher rates.
§ Mr. Butcher
I beg to second the Amendment.
I would like to support the observations made by the hon. Member for Bath (Mr. I. J. Pitman). I think this is a very difficult case for the Financial Secretary to answer. The case which the Financial Secretary will have to answer is that these increased incomes must be treated either as earned income or as unearned income. It must be one or the other. It may be the Treasury wish to treat them all as unearned income in that they do not arise as a result of gainful employment. In that case I think the Financial Secretary is going to be quite wrong. If cases are examined in detail it will be found that certain kinds of benefit are likely to arise. There will be benefits in respect of industrial injury. That is only to fill the gap between the earning of an income before injury and the resumption of gainful employment after injury. To treat the period when the poor man is sick and away from work as the period when his income is to be treated as unearned income is an extraordinary approach to the problem. Then there is the question of sickness benefit. The vast majority of the people of this country are earning their living. Payments made when they are away from work through sickness should be regarded as a contribution made by the State to ease the situation.
The hon. Member for Bath suggested that, of all benefits, maternity benefit is the one to be regarded as most properly earned. Surely, the idea of paying family allowances in respect of children is to enable the mothers to take care of the children and have more money to spend on them. On the other hand, we have to face the fact that certain allowances, such as the retirement allowance, are paid conditionally on not earning income. It may be that those allowances, with other private means, will bring a person liable and within the taxable limits of income. It is extraordinarily difficult to know what is the right way of dealing with this, but I think the Financial Secretary will be interpreting the will of the House if 2798 he treats all these modest payments, payable week by week, in the main, through the Ministry of National Insurance, as earned income, whether, in fact, they are earned income or not.
§ Mr. Glenvil Hall
I think we can dispose of this quite simply. If I understand the object of the mover of the Amendment, it is to secure that benefits under the National Insurance Bill and Family Allowances Act should rank as earned income when computing, in the hon. Member's own words, tax at the rates applicable to earned income. Quite frankly, we cannot accept this Amendment, for the one reason that, technically, these words would be unacceptable, because there are no rates of Income Tax applicable to earned income. The earned income relief is given by way of a percentage reduction on the total amount of a man's income, and not by way of a rate or rates of relief applicable to earned income.
Actually, however, this Amendment deals with reliefs, and the Resolution with which we are dealing refers to a charge which it is desired to impose, and, therefore, we are talking about two very different things, and this is not the place to consider a matter of this kind. The Finance Bill, which will be introduced in due course, will be the proper vehicle for the points put forward by the two hon. Members opposite to be ventilated. I may, perhaps, say, for their information and of the House, that the Clause which we propose to put into the Finance Bill will provide for the grant, in respect of benefits and family allowances, of the earned income relief of one-tenth, which is the present rate, and which, of course. after October, will be adjusted to one-eighth. I take it that that will meet the points raised by the hon. Gentlemen opposite.
§ Mr. Pitman
I should like to thank the Financial Secretary for that. I am sorry if I seem not to have made myself clear. I beg to ask leave to withdraw the Amendment.
§ Amendment, by leave, withdrawn.
§ Mr. Deputy-Speaker (Major Milner)
The meaning of the next Amendment is not very clear to me, but I will call on the hon. Member for Bath (Mr. Pitman) to move it, and perhaps he will explain it to me.
§ Mr. Pitman
I beg to move, in line 4, at the end, to add:Provided that where a widowed mother of children, being qualified as a claimant, marries someone other than the father or putative father of such children no income tax shall be charged.This Amendment is designed particularly to benefit widows and orphans, a purpose which this House has Scriptural and quite normal reasons to wish to achieve. The point at issue is this. Let us take a war widow, who is left a widow as the result of her husband being killed in this war, and who has, shall we say, four or five children. She ought, and I think the House will agree, to re-marry, and, in seeking a new husband, the children themselves are a potential handicap. It is, however, a handicap plus, because, not only does she have to find a man to marry her who will take on a e children, but she has to find a man who will take on the children plus the Income Tax liability on the family allowances which she personally receives, as of right, under the proposals which this House in its wisdom has put forward in the Family Allowances scheme, so that her situation as a prospective bride is very much worse than I think this House would wish it to be.
It is perfectly true that the new husband's contributions to the Family Allowances scheme have been, in the past, tax free to him, but so they would be were he not to marry and so they will be for everybody else in the realm. For that reason I would think it was not a fair reply to my proposal to say that the new husband will be getting Income Tax relief on his weekly contribution because, whether he marries the woman or not, he will still get that Income Tax relief. Therefore, I cannot see that the Financial Secretary has any difficulty facing him on at any rate that issue.
You will notice, Sir, in that part of my Amendment which may not have been clear to you, that I have been at great pains to leave out widowers because it seems to me that widowers are in a completely different category to widows. To begin with, owing to the Income Tax laws, they do not as widows do bring a tax liability to the other partner of the marriage; they merely continue an existing liability. The tax is their liability only and they alone can be sued for it. In the second place, I think we ought to 2800 exclude widowers because, after all, it is man who propose and woman who disposes and, looked at from the angle of a widower with a number of children, it is entirely up to the woman whether she accepts him or not, whereas, on the other hand, the widow cannot very well propose matrimony to her intended husband, so that it is a very different state of affairs. I have also been at pains in that part of the Amendment to leave out the cases of illegitimate children being legitimised on marriage. I should, however, be perfectly happy to accept that also from the Financial Secretary if it is his wish, but I do not want to press him farther than he will willingly go. Similarly, I have left out the case of the divorced person who remarries and, as it were, "reparents his own children." With all those safeguards, I should have thought this was an Amendment which would commend itself to the Financial Secretary and to the House, and I hope he can meet me on this question.
§ 9.0 p.m.
§ Mr. Glenvil Hall
I am not sure that I really understand what the hon. Gentleman wants to do here, but so far as I do understand, I assume that what he wishes is that where a widow with children gets family allowances for them at the rate of 5s. a week, she should pay no tax on that money. I think that the case he has in mind is where a widow marries again. He seems to take exception to the fact, unless I very much misunderstood him that that income will be included in the husband's for tax purposes. But what has the lady to complain of in that case? She has the right to draw the money from the Post Office, and he gets charged the tax on it.
I do not see how it can benefit a woman if we attempted to alter that set of circumstances. I would say—and perhaps it will shorten the Debate—that I know how strongly the hon. Gentleman feels on this subject, because I remember that he put down a Question on it to the Lord President some little time ago, but this is not the place to debate it. After the Recess we shall consider the Finance Bill, and that will be the occasion on which this matter can be argued, if the hon. Gentleman wishes, at some length, and a proper Amendment can be put down if he so desires. It cannot be done here because we are dealing with a Resolution which imposes a charge.
§ Mr. Pitman
I thank the Financial Secretary. I would like, however, to make the position clear so that he can consider it before I put down an Amendment to the Finance Bill. The proposal is directed to the period before a widow remarries. The issue is that she is much less acceptable for re-marriage because she carries with her not only children but a liability in respect of tax, and her earmarked husband will have to take on as well as the children the tax liability. I beg to ask leave to withdraw the Amendment.
§ Amendment, by leave, withdrawn.
§ Motion made, and Question proposed, "That this House doth agree with the Committee in the said Resolution."
§ Mr. Butcher
Before we part with this Resolution I would be grateful if the Financial Secretary could give us some details of how it is proposed to collect this tax. He indicated that the purpose of this Resolution is to bring into charge benefits payable under any Act relating to national insurance, including family allowances. In replying to the hon. Member for Bath (Mr. I. J. Pitman), he pointed out that while the allowances, such as family allowances in respect of children, would be payable to the wife, the tax would be assessed on the husband's income. I would be glad of some further information on how this question of allowances is related to Pay-as-you-earn. By the Ninth Resolution we encourage married women to remain at work. Therefore, it is not unreasonable to assume that in a large number of cases there will be at least three sources of income in the home —the earnings of the husband and the wife, and family allowances or other allowances coming under national insurance. Family allowances are fixed, and while the code number fixed by the inspector of taxes has been communicated to the employer of the man or wife, only the passing of the child out of the provisions in respect of family allowances, or the entry of another child into the family, will alter the coding.
On the other hand, other allowances are now being brought in. The first one which occurs to me is maternity benefit. Under the Bill as drafted, it is proposed that maternity benefit shall be payable during a period before and after the birth of the child. Does that mean that the code card has to be altered in the case 2802 of the man, that the inspector of taxes is required to communicate to the man's employer an alteration of the code number in terms of maternity benefit payable to his wife, and then, when the period of benefit is exhausted, a further communication will have to be made to the employer, with the position restored subject to such adjustments as there may be for family allowances? If so, I can see nothing but an intolerable burden being placed upon the inspector of taxes, who will be collecting information and revising the code card while, in the same way, the employer will be adjusting his deductions from time to time.
On the other hand, is it proposed that these allowances shall be taxed at source? I am sure that this Resolution was not produced by the Chancellor without considerable thought, but these are problems which must be solved because they are practical problems of administration. I would be grateful if the Financial Secretary would tell us how it is proposed to collect taxes on these items. How much work will it impose on the local inspector of taxes? How much work will be imposed upon the employers? Finally, will there be any direct link between the Ministry of National Insurance and the inspector of taxes?
§ Mr. Glenvil Hall
Perhaps I might speak again, with the leave of the House. This is being made far more complicated than it really is. Normally, as I think the House knows, husband and wife are treated as one, and a joint allowance is given to them both. Normally, as the husband is the breadwinner, he gets the allowance through his Income Tax, it being done through the code number he is given. If a married woman living with her husband desires to be assessed separately, usually the amount is split between the two, and she has her own separate assessment. Notice of that had to be given to the local inspector of taxes. That is an abnormal method, if I may so term it. In that case, the assumption is that the benefits—particularly the family allowance, as it is laid down in the Act that it should be subject to tax—will go in as part of the total income in that home. If the wife draws the allowance, the husband will normally get the joint allowance for that purpose. I see no difficulty about it whatever. If the woman is assessed separately, normally the husband will be charged for it because it is 2803 primarily his duty to keep his family, although the wife may go to the post office and draw the money. In the first instance it is taken care of in the code number that is given to the husband.
§ Mr. Glenvil Hall
The whole thing is on the same basis. Family allowances were used as an example. Even now people get £1 a year for the widows' and old age pensioners' insurance contribution. What they will get when this becomes law is an allowance of £11 a year instead of £1 a year. That assumes the contributions will be about £10 a year, upon which they will get benefit.