§ 2.50 p.m.
§ Mr. Osborne (Louth)
I apologise for raising so late a matter which I consider to be of great importance, but it is of such importance that I thought it should not be left over. I want to draw the attention of the House to what I believe to be the evil effects of P.A.Y.E. on production. We have heard a lot from time to time about the Battle of Britain. We are now faced with a battle of production, and the consequences of losing this battle will be nearly as important as if we had lost the Battle of Britain. Everything depends on winning this battle. From time to time appeals have been made to the employers and employees to do better in the matter of production. We need more coal, houses, clothes and food, or the social policy of the Government cannot be carried out. The Prime Minister, very wisely and courageously, has made an appeal to employees and trade union leaders for greater production. Its greatest enemy is neither the trade unionists nor the employers—it is the Chancellor of the Exchequer who is pre- 996 venting output more than any other person.
It was only about three years ago that P.A.Y.E. was introduced in this House. It was the last act of the late Sir Kingsley Wood and was introduced by the right hon. Member for the Scottish Universities (Sir J. Anderson) as his first task as Chancellor of the Exchequer. The idea behind P.A.Y.E. as then introduced was to prevent an accumulation of taxes and to allow working men to pay their taxes on their current income so that they would not have debts accumulating. During the war it did very good service, but it has outlived its usefulness. It was called the Wage Earners Income Tax Act, and it is the effect on the wage earner that I want to stress. The wage earner hates the tax, does not understand it and will not do his best because of it. P.A.Y.E. is a perfect example of something which is excellent in theory but works out badly in practice. To substantiate that, I would like to point out to the Financial Secretary three of its main faults.
P.A.Y.E., as it is operating today, is one of the greatest causes towards inflation. The wage earner is a realist. He is not interested in his gross earnings, from which are deducted so much for health insurance, Income Tax and other things. He wants to know how much he will take home in his pay packet. He wants to know how much he will have to spend on food and clothing, and also on beer and tobacco. He complains that the money he takes home is not enough for a man to live on. He may be told that deductions for certain things have been made, but he is not interested in that. When he looks at his net wage, he says that it is not enough for him and that he wants more. P.A.Y.E. is a very important factor in the inflationary move which we are now suffering and which the Financial Secretary will agree is one of the great dangers facing us. The old system lost us a certain amount of revenue, but the wage earner did handle the whole of his gross earnings, from which he put aside certain amounts for his tax liability, his rent and his rates. Therefore I submit that P.A.Y.E. is causing a demand for higher wages.
Another weakness is that P.A.Y.E. is causing industrial workers to be dissatisfied and disquieted. The industrial worker feels that he will not do his best. Unless he feels he is being treated properly under 997 the taxation system, he will not do his best. P.A.Y.E. is thus reducing industrial morale largely because of the low net wages. The industrial worker feels somehow that Income Tax, and especially P.A.Y.E., was invented by the devil to plague the bosses, and he does not think that wage earners ought to pay direct taxation. He hates it and he would avoid it if he could. One of the causes of our low production is the feeling among industrial workers that if they take a week off they will be getting back some of the money which they feel ought not to have been deducted from their pay packets. Another fault of P.A.Y.E. is that it absolutely kills incentive. I have not to explain to the Financial Secretary the operation of the law of diminishing returns. A man who does extra work has to put in more than usual effort. He finds that he is getting less and less money for more and more effort. This he will not do. It is a penalty on overtime and efficiency, just the two things we need. Speaking in the previous Debate, the Secretary for Overseas Trade said that the key to the position was increased production. We all agree with that, but P.A.Y.E. is the one thing which is stopping it. We cannot blame the industrial worker for not wanting to work extra time for less money. Unless P.A.Y.E. is removed and the worker gets what he considers to be an adequate reward, he will not put his whole heart into increased production.
Here are one or two examples of the operation of P.A.Y.E. Friends of mine in Leicester who are high precision engineers employ men whom they pay 4s. 3d. an hour. On a 47 hour week that amounts to about £10. When a special order came in they asked the men if they were willing to work an extra 15 hours to get the order through. The men were quite willing to put in the extra time, but they asked their boss, quite reasonably, to work out for them how much they would get. It was worked out for them that for the 15 hours they would get £3 3s. 10d. extra. Under the old tables, the extra tax was £1 7s., so that they would draw £1 16s. for what they considered to be £3 3s. 10d. worth of effort. The men said they were not going to do it. Under the new tables the tax would be £1 4s., and so the men would get less than £2 for doing work worth £3 3s. 10d. May I give another example? A Kettering clothing company wrote and told me that 998 they employed many girls who readily admit that they could earn 2d., 3d., and 4d. an hour more if they went all out.
They are all on piece-work, and an extra 4d. an hour would represent 25 per cent. more output. But they will not do it. They say to their employer that they are not prepared to work extra hours in order to pay taxes. In this industry it was hoped that with the omission of taxation on lower groups, last April, the girls would be encouraged to do better. But, unfortunately, or fortunately, whichever way you look at it, there was an increase in the rate of wages, and that increase resulted in the girls being unwilling to work extra hours. I was told that the girls could easily earn 2s. an hour, but that they are satisfied with 1s. 4½d. That means that we are losing extra output.
The manager of a cable company in Hull told me that because one of his girl workers had done extra well she was given a 10s. bonus, but that as a result she had to pay an extra £1 Is. in P.A.Y.E. That girl said she would not work hard again. This company say that every week 10 per cent. of their workers had Saturday morning off, and sometimes Monday and Tuesday mornings as well, because they believed that what they would earn they would lose in taxation. We know it is not true that they would lose all, but they lose sufficient to make them say that they will not work on those mornings. May I give two other examples from industries in which I am interested? In Leicester, we have boot and hosiery industries, both of which are largely dependent on female labour. One of my manufacturing friends in the boot trade told me that his prewar output was, on the average, 27½ pairs of shoes per operative per week. Today, it is 24 pairs, despite the increased efficiency in administration. He says that whereas his women employees should normally work 43 hours a week they have been working, on the average, only 36 hours a week this year. It is important to remember that in that industry men employees are dependent on the work done by women. So, this manufacturer is having to stand off men because the women are not doing their work. His staff officer inquired into this position, and the girls told him that their husbands were in good jobs, or that they were getting good Service allowances, and that they were not prepared to work to pay taxation. 999 At the moment, the Leicester boot trade is short of 3,000 operatives. They are still in the country, but they are not prepared to go back into the factories because they feel that they would be merely working for the Chancellor, and not for themselves. The hosiery industry in Leicester is short of 2,000 operatives, and, if the industry could only get sufficient yarn from Lancashire and Yorkshire, could do with another 5,000 operatives. This work is largely a married woman's job and, as the Financial Secretary knows, married women were allowed only £80 a year free of tax. This has been put up to £110, but the women who could earn £4, £5, or £6 a week will not go into the factories in order to pay half of what they earn to the Chancellor. I am prepared to produce figures in proof of all this. My final example is in connection with coal, most important of all. In Leicester, we have the smallest, but the most efficient, coalfield in the country. Its output is the highest per man per shift. My friends the coal managers tell me that even in Leicestershire the absenteeism is highest among young unmarried men, who are lowest in the tax scale. It is a common practice for them to calculate how much tax they have to a certain date and then, when there is a sporting event in the district, to leave their work. If the country is to recover we must have higher output in the coalmines. To do that we must encourage the miner, and the way to do that is to abolish this tax.
§ Mr. Speaker
When the hon. Member says, "abolish this tax," that is out of Order, as it involves legislation.
§ Mr. Diamond (Manchester, Blackley)
What is the point of all the hon. Member's remarks, if not to abolish the tax?
§ Mr. Osborne
The point of my remarks is to show the evil effects of this tax on production. It is for the Government to decide what they should do. Surely the hon. Member knows that if we do not have full production the social policy for which he and I stand will not be possible. In a Debate in this House, in 1943, Lord Pethick-Lawrence, who was then in Opposition, said:It might have been mentioned in the coal debate yesterday, as an additional reason 1000 why the coal miner should exert himself during the next few months, that, in fact, any increase of wages which he earns at present does not involve him in any additional payment of tax."—[OFFICIAL REPORT, Thursday, 14th October, 1943; Vol. 392, c. 1109–1110.]To the industrial worker taxes mean P.A.Y.E. The hon. Member for Dumbarton Burghs (Mr. Kirkwood), who, it will be admitted, knows as much about working men and industrial conditions as anyone in the House, was explaining, in the same Debate, why urgent work requiring to be done on the Clyde had not been done. He said:When the foreman went to these workers and asked them to do extra work … the men refused. They said that if they worked overtime the money they earned would be taken off in Income Tax."—[OFFICIAL REPORT, Thursday, 14th October, 1943; Vol. 392 c. 1128.]So they would not work. The problem before us, therefore, is whether the Government are to insist on having taxes or production. I do not think they can have both. Production is of the greatest importance. If the social policy which we all wish to see—better education, more houses, and a better life for everybody— is to be realised, we must make the industrial machine work with greater efficiency, and no impediment should be put in the way. The greatest impediment today is P.A.Y.E., and I beg the Financial Secretary to look into the matter and see what can be done.
§ 3.9 p.m.
§ Mr. James Callaghan (Cardiff, South)
I realise that we must steer a tricky course today, Mr. Speaker, in order to avoid transgressing your Ruling, and I congratulate the hon. Member for Louth (Mr. Osborne) on having got by so well. The hon. Member always speaks with sincerity on these issues, and with much of what he has said today I find myself in agreement.
There is no doubt that the effect of P.A.Y.E. has been to bring home more sharply to the taxpayer than ever before what is the actual effect of taxation on each week's earnings. In the old days, when Income Tax liability was calculated only once or twice a year, and a worker was sent a bill for the gross amount, he could not relate that amount closely to what he earned on any particular day or in any week. Now, when every Friday 1001 pay day comes, he can see precisely what has been the effect of the three hours' overtime that he may have done the previous night, and this has brought home to him more closely than ever before the precise effect of our taxation system. It was to that that the hon. Member addressed his remarks. I rather thought that he suggested that one of the reasons for this system being introduced was that it would result in a gain for the revenue of several million pounds. That was thought of afterwards, and that the £25 million a year which the Chancellor gets over what he used to get has been a by-product of that system, and certainly was not the main reason, or one of the reasons, for introducing it. We must remember that one reason for introducing this system was the clamour of the wage-earner. It was he who, in the days when production was just as important as it is today, was saying precisely the things which the hon. Member quoted from the hon. Member for Dumbarton Burghs (Mr. Kirkwood), and it was precisely because of his claim that the system that existed at that time affected his productive effort that he said we must have a new system.
I believe that the Chancellor summed up the whole of this problem in the Budget discussions when he said that the real trouble was not P.A.Y.E. but P.A.Y.I.N.G., but the fact remains that, as long as the rates of taxation remain as high as they are, we cannot expect, by juggling with various systems, to remove the almost intolerable burden which the wage-earner has to bear. I followed with great interest the comments of the hon. Member on the effect of the present rates of taxation on the prospect of inflation. I think there may well be something there for the Chancellor to consider before the next Budget. He was absolutely right when he said that what the worker looks at is his "take-home" pay, and that he is not interested in the gross amount shown on his pay envelope. Although one would normally expect that a reduction in the rate of taxation, with the consequential release to the pay-packet of more money per week, would produce an inflationary tendency, I am not at all sure that there would not be a deflationary effect, because, by putting more money into the pocket of the wage-earner, we would prevent the undoubted pressure that exists for wage increases at the present time, and, instead of having a long term in- 1002 flationary effect, it might, in fact, finally have a deflationary effect. I would not care to dogmatise on that, but I think there is something there for the Chancellor to consider, and I think that we ought, in connection with the production campaign, around which the hon. Member's remarks revolved, to pay a tribute to the attitude of the General Council of the Trades Union Congress on this matter. In that, as in their attitude on wage increases generally, I think they have shown the greatest statesmanship in what they are doing, and that they are to be congratulated on the bold and successful line they are taking.
I followed with interest the comments of the hon. Member when he referred to the fact that people were not willing to work longer hours for more pay, above a certain amount. There was a hiatus in his argument, because he said that the reason for that was P.A.Y.E. I do not think that is the reason at all. Surely, the position is reached with ordinary people, when they have a certain standard of life and a certain amount of money in their pockets, that they are no longer willing to go on working purely for more money, for they value their leisure above more money, and even if we were prepared to abolish the Income Tax and put all that additional money in their pockets, we should not necessarily get higher production. Otherwise, why is it that married women who have been used to going out to work in the past are not willing to go out to work now? I suggest that the reason is that their husbands, by contrast with prewar, are getting a rate of wages which enables them to maintain them and their wives at a modest standard of comfort which can be sustained without the necessity for the wife's earnings.
If that is so, then juggling with P.A.Y.E. will not help. The hon. Member for Louth, perhaps, does not agree with me. In connection with this production campaign, while I think that some of the hon. Member's comments well deserve the consideration of the Chancellor before his next Budget, it seems to me that our main task is to replace the present incentives by some more intangible incentives than exist at the moment. There has to be a new relationship between employer and employed. There has to be a greater feeling of respon- 1003 sibility by the employed man for the industry and the factory in which he is working. That is one reason why I am a Socialist, because I believe that one gets that ultimate sense of responsibility in a Socialist society where a man feels that he is working for the good of the community as a whole and for the communal good which flows from his work in his own particular factory.
§ Mr. Osborne
Would the hon. Gentleman say why it has not worked in the coalfields so far? I put that forward as a very serious question.
§ Mr. Callaghan
It is a serious question, I agree, and I would be the last to pretend that the degree of nationalisation that has taken place in the coalfields to date has resulted in the psychological incentive that I thought would have resulted. There is no reason why we should not face that fact, and although it is early days it is no good burying one's head in the sand. The hon. Gentleman, of course, would probably differ from me, because I would say that a much higher and faster rate of socialisation would produce greater psychological incentives in the country as a whole. Indeed, when one looks at some of the countries on the Continent, I believe that to be a fact. I do not think I am wandering too far away from the subject, if I may say so, Mr. Speaker, because all the hon. Gentleman was talking about and what everything was centred around was the need to increase production. That was the whole basis of this discussion.
I am not wedded to a system of heavy direct taxation as opposed to indirect taxation, although we on this side of the House in the past have always preached the virtues of direct taxation. But we learn by experience, and because we said it 50 years ago there is no reason why we should go on saying it now. I believe there is a very good case to be made for having a popular taxation system as well as for having a fair taxation system. The Chancellor has to consider which of his taxes will be popular despite all the classical arguments about the regressive effects of indirect taxation. What I propose to say, and where I think the hon. Member for Louth would disagree with me profoundly, is this. As we get a more fully developed Socialist society, as we 1004 shall in this country, as we get more and more to the stage where men will start life equal as far as possible, and will rise by merit in the sphere in which they can offer the maximum contribution to the country's welfare, I do not think we ought necessarily to persist in a system of taxation which will tax higher remuneration at a higher rate. Indeed, in a fully developed Socialist economy, I would expect to see indirect taxation replacing direct taxation as the main source of revenue, because in a Socialist society, where men start equal and rise by merit, there is no point at all in giving them a substantial wage to reward the contribution they are making to the national economy, and then taking it away by taxation. These are ideas which, perhaps, we do not often express on this side of the House, and yet I am certain that as we move along the Socialist path, as we are doing, under a very great Chancellor of the Exchequer, we have to adjust our our ideas of taxation accordingly.
I conclude by saying this. I am certain the hon. Gentleman the Member for Louth has performed a service in raising this subject, but I am quite unconvinced that if P.A.Y.E. were replaced in its present form by some other system at the present moment it would have the effects he desires. Indeed, while he was completely critical in his analysis of the evil effects of the present system, he did not tell us what ought to be put in its place, and until I see a better alternative to put in its place —probably he would not be able to tell us this afternoon—I remain convinced that at the present moment the P.A.Y.E. system is undoubtedly the best system in the interests of the taxpayer.
§ Mr. Speaker
I might point out at this moment that I am scratching my head a good deal about this Debate, as to what is in Order and what is not. The hon. Member for South Cardiff (Mr. Callaghan), who was picking his way very carefully, said these considerations about P.A.Y.E. might be considered by the Chancellor in his next Budget. That would involve legislation, and clearly that is out of Order. I do not know whether the Financial Secretary can make any reply which does not involve legislation, but I do warn the House that I shall be very strict in pulling 1005 up hon. Members who do not keep to what is in Order on this occasion.
§ 3.21 p.m.
§ Major Haughton (Antrim)
What you have just said, Mr. Speaker, scares me a bit at the outset. I think I would be in Order, however, if I said that I was very much impressed by and deeply interested in the contribution from the hon. Member for South Cardiff (Mr. Callaghan). A lot has been said in this House at different times, and outside it, about those who do not consider it worth while continuing work after reaching a point in their earnings where tax seems to absorb the subsequent pay. I have always been a far greater admirer of the man who went, having said he would not go, than of the man who said "I will go" and never stirred. There are a tremendous number of workpeople in the country who continue a full and effective week's work, despite anything they may think about taxation. Having listened with interest to the many sympathetic references about this subject made by the Chancellor of the Exchequer during the Budget Debate, I would ask the Financial Secretary to bear in mind sympathetically those who have continued to work despite taxation, and to think in terms of reward and encouragement rather than in terms of a bait to bring in those who remain absent from work.
§ 3.23 p.m.
§ Mr. John Edwards (Blackburn)
It seems to me important that we should distinguish between the effects of taxation in general, the effects of a particular system of taxation in any one year, and the effects of P.A.Y.E. I thought that the hon. Member for Louth (Mr. Osborne), who introduced this discussion this afternoon, was talking very largely about the effects of taxation as such, or the effects of the particular taxes that we have in the current year. In so far as he was dealing with those topics, and in so far as my hon. Friend the Member for South Cardiff (Mr. Callaghan) was dealing with those topics, I think I ought not to follow. Clearly, we have not yet got to the point where people pay their taxes with a smile. The important thing for us this afternoon, I think, is to ask whether the P.A.Y.E. system as such is a deterrent. In so far as P.A.Y.E. means "paying as you earn," it seems to me to be a wholly good system. The difficulties with it, as I under- 1006 stand it, are that it does not always work out as "paying as you earn"; it can mean "paying a considerable time after you have earned."
I rose this afternoon to bring to the notice of the Financial Secretary one point which seems to me to be of particular importance in considering the effects on production of P.A.Y.E. When I was in my constituency recently, I had to see me a man who came on behalf of a number of employees in a large firm in Blackburn. All were married men whose wives had been working, and their assessments for 1944–45 and 1945–46 had shown that in this particular group they had under paid tax to the tune of anything between £7 or £8 up to about £25. In some of the cases the wives had already ceased working. In almost all the cases the men themselves were now earning less than they had done in the years for which the assessments had just come in, and they were faced, therefore, with lower incomes, but with a charge to be met in the forthcoming year which might be as much as 10s. a week.
This position, as far as I could understand it, seemed to have arisen owing to the fact that the deductions from the wives' earnings were made at the rate of 6s. 6d. in the pound over the years in question; and the husband was now called upon to pay the difference between this and the standard rate which fell to be paid on a certain part of their joint income. This is a P.A.Y.E. case. It is administrative. It means that the Revenue authorities under the P.A.Y.E. system have not, so far, found a way of taking from the wife's Income Tax at a high enough rate in the pound in cases where the joint income goes beyond a certain figure. It seems to me that there is no reason why this should not recur from year to year, unless some administrative way is found of having a more accurate estimate of the tax to be paid at an earlier point in time than hitherto has been found possible. I know that the people concerned are not required to meet the under-payment at once. I know that it merely means a change in their coding, and that they pay over a period of time. But the shock that is felt by the man when he gets his assessment, his strong feeling that there is something wrong if, at this point in time, he can suddenly be asked to pay as much as £25 which he ought to have paid in the past—the shock to him, 1007 and the deterrent upon the wife against her going on working, is considerable.
I would urge upon the Financial Secretary that there is a great need for this aspect of the problem to be considered. I do not know what the solution is. I am solely concerned with having an administrative arrangement which makes it possible for an adequate amount to be taken from the wife's income, rather than a system, as we have now, which makes it quite certain that the husband, when his assessment for the past year comes in, will be called upon to pay an extra sum in the current year.
§ 3.29 p.m
§ Mr. Paget (Northampton)
I, for my part, feel extremely grateful to the hon. Member for Louth (Mr. Osborne) for having raised this most important subject, and, when I heard him argue his case, I found myself very largely in agreement with most of the factual criticisms he made of P.A.Y.E. as it is working out in practice. I entirely agree with him—and I do not think there can be two minds on this subject—that it is working as a brake upon production. Equally, it does tend, in one aspect, to have an inflationary effect in causing demands for increased wages. But, whilst agreeing with the hon. Gentleman that this tax is an evil, I feel that the important thing which we have to consider is whether it is a necessary evil? Because—and it really comes to putting the same thing in a slightly different way —we have to consider whether any alternative would create a yet greater evil.
§ Mr. Speaker
An alternative would be completely out of Order. I am afraid that even the suggestion of an alternative is out of Order.
§ Mr. Paget
I bow to your Ruling, Mr. Speaker, but what I was going to consider —I do not know if this would be out of Order—was what would happen with regard to the balance between purchasing power and available goods in the hypothetical case of that tax not operating. With great respect, I would suggest that when one is considering the operation of a tax, it would be relevant to consider what would be the actual effects on production, and so forth, if it were not operating. After all, the object of P.A.Y.E., as well as of Purchase Tax and, to a great 1008 extent, of rationing and various other things, is to get some sort of balance between the effective purchasing power going into people's pockets, and the goods and services which are available for them to buy. If that sort of balance does not exist, you get headlong inflation. If, instead of the balance being effected at the moment when the purchasing power is handed out, that is to say when the pay packet is handed over, it were only effected at a later date, then the very evil which this type of taxation has been introduced to avoid would have operated before the taxation became effective. Therefore I suggest that whilst we should all—in a purely hypothetical manner, Mr. Speaker—like to see no more taxation of wages yet, so long as there is taxation of wages it is no use taxing them later; they must be taxed at the point where they become effective as purchasing power.
§ 3.33 p.m.
§ Sir Stanley Reed (Aylesbury)
I hope, in the two or three sentences I wish to say, to be able to keep within the Rules of Order. We all listened with great respect to what has been said with regard to the effect of P.A.Y.E. on production, but I think the wider issue was very trenchantly expressed by the hon. Member for South Cardiff (Mr. Callaghan). I do not think the House should forget that what we call P.A.Y.E. today is not the original proposal of Sir Kingsley Wood. Sir Kingsley Wood's original proposal was to spread the burden of direct taxation over a larger body of the community. Revenue, no doubt was important, but what he felt was even more important, was that the community as a whole should feel the effect of direct taxation. When he introduced that Budget, I warned him that unless he collected the money at the source, he would not collect it at all, and the Treasury produced unanswerable arguments that it could never be collected at the source. Then they found it could be collected at the source, and what we call P.A.Y.E., after a considerable sacrifice of revenue—I believe it amounted to 10 months' revenue—was introduced.
At the time I thought that that was one of the greatest financial reforms in the history of Income Tax, and I think we see the result today in the very inter- 1009 esting question raised by the hon. Member for South Cardiff about direct and indirect taxation. I should like to assure him that had he sat in the House in the days before Income Tax was spread over the general body of income earners, and expressed the admirable sentiments he has expressed today, they would have been received with horror and dismay by his friends. We have had as a result of this a much greater appreciation of the economic and fiscal effects of direct and indirect taxation, which is wholly to the good. I would ask the Financial Secretary, and I am confident we shall have it from him that in any reply he may make, while indicating that there will be careful examination of the effects of P.A.Y.E., or to call it by its correct name, "Income Tax on the general body of income earners," he will not abandon the principle so long as Income Tax is on a high level.
§ 3.36 p.m.
§ Mr. Diamond (Manchester, Blackley)
Considerable courage is needed to enter the Debate at this stage, in view of the repeated warnings that we have. I trust that I shall keep in Order, because I shall not attempt to suggest an alternative. I support P.A.Y.E. wholeheartedly, and I think it is time that that was said from these benches. It is significant that the so-called representatives of the working men on the benches opposite are telling us what the working man wants and what he does not want, whereas it is common knowledge that the established representative body of the working man sincerely wants P.A.Y.E., and especially is this so when wages are falling. That is a point to which the hon. Member for Louth (Mr. Osborne) did not pay sufficient attention. I have no hesitation in saying that all this argument about deterrents to production is grossly exaggerated. People should be very careful in making statements like that, unless they have direct personal knowledge that it is so. When the hon. Member for South Cardiff (Mr. Callaghan) makes a statement, I am sure that he has personal knowledge, and is not relying on experience in the somewhat technical and rarified atmosphere of the Income Tax inspector's office.
I can only speak from my experience in talking to the men. If it is alleged that some people do not work too well because 1010 they do not like paying Income Tax, I can say that as one who has practised as an accountant for many years I have found that there is not only one category of people who do not like Income Tax and they are to be found among Income Tax and Surtax payers as well. If it is alleged that people do not like to work because of the effect of P.A.Y.E., then it is the fault—is one of the glaring faults— of management. It is obligatory on the employer to explain fully the effects of P.A.Y.E. and to see that the effects are realised. It is nonsense to say, as has been suggested, that all will have to pay the same amount of tax, unless everyone is in the same taxation category, as anyone who deals with taxation knows. Knowing that the men want P.A.Y.E., and that the revenue cannot be produced in any other way, I say that we should set ourselves to encourage men to work, instead of spreading the ill-conceived gospel that P.A.Y.E. is a deterrent to production.
§ 3.39 p.m.
§ Sir William Darling (Edinburgh, South)
I do not think reference has been made to one aspect of P.A.Y.E. which concerns managements. I am connected directly and indirectly with organisations which employ many thousands of people. What is felt very acutely is the introduction of a new element in the management of industry. Up to now, there was a clearly defined function as between tax collection and management. Under Pay-as-you-earn, to take a personal example, I am placed in the position of being the tax gatherer, and the tax gatherer, quite rightly, has been a detested figure throughout the ages.
§ Sir W. Darling
There have been many cases in which riots and revolutions have been provoked by tax collection, and when the execution of tax gatherers has been hailed by people as a step towards freedom. Now this odious business is imposed upon me—
§ Mr. Speaker
I am afraid that it is under an Act of Parliament that the employer must collect the money, and to suggest that he should not collect it is, I am afraid, out of Order.
§ Sir W. Darling
I concur readily in what you say, Mr. Speaker. I was intending to urge in relation to incentive to production that the use of an unpaid officer, the manager of the business, as tax collector, impedes the working of the Act of Parliament and so hinders production. If I may be allowed to develop that view by example, I would instance two employees of mine. They come before me and they say to me, "We are engaged on equal duties. We used to receive £400 a year from you. Here are our pay packets—"
§ Mr. Speaker
I am afraid the hon. Member is the tax collector by law. When he suggests that he should not be the tax collector, he is suggesting something that would entail a change in the law. Therefore, it is out of Order for him to argue that.
§ Sir W. Darling
Yes, Sir. My suggestion is not to change the law. I am attempting to indicate my view that the duty placed upon managers of businesses by law is a factor in disturbing the harmony of the conduct of industry, and that the odium which, wrongly perhaps, hitherto rested on the public official, is transferred to one whose primary duty is to organise and stimulate production. This consequent irritation—and there are genuine grounds for irritation—is an addition to the limitations on production. That is the relevant point. I am not asking, nor dare I, that it should be removed or modified. It may not have been anticipated that this officer appointed by the State might be involved in effects other than those originally contemplated. There is all the difference between an official demand from the Post Office for the cost of one's telephone, and a demand of that kind made by an unofficial person. The effect of P.A.Y.E. is to make a person who is not an official person an agent for the State—and it is legal and proper that it should be so—and in performing that duty, well intentioned though he is, he does what, as a loyal citizen, he would desire not to do—hampers and hinders. It is an important point to be considered by the Financial Secretary, who, no doubt, with that ingenuity he has at his command, will be able to modify if not entirely to remedy it.
1012 It is impossible to discuss the alternatives, but there are many which, if you would allow it, Sir, could be discussed on some later occasion. The previous Chancellor had from me, proposals which followed the lines of those made by the previous speaker, with his experience in the City, proposals which were neither undertaxation nor taxation according to weekly earnings but in excess of these proposals. I want to make the point that P.A.Y.E. might be I do not say changed, but modified on this basis—that in place of having a somewhat elaborate and costly table system, which deals with shillings and pence and odd sums which are modified from time to time, a flat sum of, say, £2 or £4 should be deducted each week.
§ Mr. Speaker
I am afraid that that would require legislation, and is quite out of Order. I think that the hon. Gentleman is on very dangerous ground.
§ Sir W. Darling
It is because I have seen the tables monthly and quarterly that I make the suggestion. As you know, Mr. Speaker, they are very elaborate, and what I suggest is a modification, not of the principle, but of the method of deduction. However, if a discussion of machinery is out of Order now, I must defer it to a later occasion. In more general terms, I would say that there is, at any rate, a body of opinion, amounting to proof, that this novel method of taxation has certainly caused thought and consideration to many wage earners, and perhaps its effect on those who have not yet been encouraged by the desire to serve the State, has been to limit their activities and to reduce their productive capacity. Whether, when taxation becomes universally borne and looked upon as a boon and a blessing to man, that atmosphere will change, I do not know, but I am optimistic enough to hope that it may. But there can be no question, from my experience—which ranges from engineering, detailed distribution, banking and half a dozen other activities—that, with both men and women, this unexpected and, in their opinion, oppressive taxation, levied not by the State, but through an individual whom they looked upon as their employer, has the effect of limiting their desire to earn more money for themselves in order to be taxed more highly by the State.
§ 3.47 p.m.
§ The Financial Secretary to the Treasury (Mr. Glenvil Hall)
If it were not for the fact that I am in duty bound to reply to this Debate, nothing would have dragged me to my feet in view of your Ruling, Mr. Speaker, and the fact that nearly every speaker in putting his points has trespassed on the Rules of Order. The subject we are debating is P.A.Y.E. and production. The hon. Member for Louth (Mr. Osborne) complained that the liability to pay tax, and the present method by which people had to pay it, represented a clog on production and prevented people from putting in a full week's work. Perhaps I can answer him and the points of a similar kind made by other hon. Members, by saying straight away that I, at any rate, am not going to suggest any alteration in the present method of collection, or that we should introduce legislation in any shape or form.
A Debate of this kind is, of course, extremely interesting. All of us pay taxes of one kind or another though, since the war, the number of people who pay Income Tax has dropped. Nevertheless, it is true to say that something like 11 million to 12 million still pay Income Tax as against the four million or so who paid it before the war. Therefore, a very large majority of the people in this country are interested in the subject. The question we have to consider this evening is whether the paying of Income Tax does prevent certain sections of the people from working as hard as they would otherwise do in the legitimate and normal attempt to take home each Saturday as much as possible in their pay packet. My own view is identical with that put with such force by my hon. Friend the Member for Blackley (Mr. Diamond). It is true that there are people in all walks of life who will not work unless they feel that they are going to get every single halfpenny they can, but fortunately—and this came out very clearly during the war —the vast majority of the people have some social sense, and are willing, when the case is put to them, to work for the State as well as for themselves. If I were asked why some people today may not be working as long hours as they might, I would say that one reason is that there is very little to buy in the shops, another that they have gone through long and tragic years during the war, that they 1014 are tired, and that their diet, unfortunately, is not as varied as it might be. All these things combined suggest to them, in some cases, that at the moment at any rate, it is not worth while working too hard or earning more than they need to keep their home going because after all there is very little on which to spend the money.
When the hon. Member opposite indicated that in his view P.A.Y.E. was the chief reason for the slackness which he asserted was there, I could not help thinking he must have forgotten the changes during the last year. During this last year a great deal has been done —not perhaps for the reasons he stated but for other reasons—to take the lower paid worker out of the Income Tax paying class and therefore out of P.A.Y.E. The hon. Member gave the House instances of engineers who were earning up to about £10 a week and who said it was not worth their while to work longer hours for something like £3 or £3 10s. because from £1 to 30s. of it would go in tax. That may well be, but I think that many people would deduce from that not what the hon. Member deduces but that the standard of living in this country now has so risen, that it is possible for men to feel that they have earned enough and that there is, therefore, no reason why they should exert themselves any more.
§ Mr. Osborne
May I point out that the men in this case were quite willing to do the extra 15 hours? There was no slacking so far as they were concerned, but they said, "Work it out for us and tell us what we shall get net." When they were told, they said they were not going to work because of the amount they had to pay in tax.
§ Mr. Glenvil Hall
I do not think that that destroys the point I was trying to put, namely, that they were already earning sufficient and, owing to the conditions now prevailing, it did not appear worth their while to earn the £2 or so extra. What the hon. Member did not explain to the House was that the position of all these men could not have been exactly similar. As was said by my hon. Friend the Member for Blackley some of them must surely have had children. They could not all have been single. If that was so, it is quite obvious that some of them at any rate would have received far more out of 1015 the £3 or £3 10s. earned than the amount he stated, because if he will look at the table published last April he will see that a married couple with two children and an income of £500 a year—which is roughly the figure that applies to the men he mentioned—the most they would pay would be about 1s. 9d. in the £. If any of them have a wife and three children, the most they would have had to pay would be one shilling in the pound. If they had more children than that, the chances are that they would not pay anything at all—
§ Mr. Callaghan
I think the point of the hon. Member for Louth (Mr. Osborne)— and there is a lot in it—is the marginal effect on the last pound of a man's earnings. While it may be that right over the whole of the earnings for a week a man only averages 1s. 9d. in the £1; in the last hour of effort something of the order of 5s. might be deducted. I do not think that can be avoided under the present system.
§ Mr. Osborne
I pointed out that the man has to put in extra effort, and that he gets less than the average return for it.
§ Mr. Hall
That may be true. All I am pointing out is that, in so far as the present Government can, they have done their best to meet the case of the poorer paid workers who, owing to the fact that money had to be raised during the war, suffered relatively heavily under taxation. The Government have done their best to temper the wind to the shorn lamb. Over 2,500,000 of these people have now gone out of the Income-Tax paying class altogether. Even a single person has to earn up to nearly £4 before the tax on him approximates—I will be careful and not say in any one week—to one shilling in the pound, which, quite frankly, in these difficult times cannot be said to be penal. A married man with five children has to earn nine guineas before he pays any Income Tax at all, though it is true that when he goes above that the tax does begin to operate steeply. Whether at any time we can work out a system which will gradually tail the thing off and acclimatise individuals to it, I do not know. This is a matter at which we in the Treasury have been working for some considerable time, and if hon. Members have any suggestions they would like to 1016 put before the Board of Inland Revenue, I can assure them from the bottom of my heart that what they have to suggest will be very carefully and sympathetically considered.
In the £500,000,000 which the Chancellor of the Exchequer has given by way of relief, in his two Budgets, we have made, I think, a very good beginning. At the present moment we have to raise something like £3,000,000,000 in the way of taxation. Well over £1,000,000,000 of that comes from Income Tax and Surtax— a colossal sum. No doubt as expenditure diminishes taxation will be diminished but whether direct or indirect tax should be reduced first is another matter and I am treading on delicate ground here. It would be most interesting to discuss the incidence of direct as against indirect taxation and to make suggestions as to which should take precedence for reduction. But, although I am tempted, I shall not attempt to do that. Suffice it to say that we believe that the present system, with all its faults, is an excellent one, and that with the present high rate of Income Tax it is the only possible one. The hon. Member for Blackburn (Mr. J. Edwards) has a complaint the exact opposite to that of the hon. Member for Louth. He said that people had complained to him that not enough had been taken from them by P.A.Y.E. and that they found, as the year of assessment progressed, that they still had something to make up. We cannot have it both ways, and I think most of us will agree that instead of having a yearly assessment with perhaps £20, £30, £40 or £50 to pay, it is much better to have it taken from us, I will not say painlessly because no tax is taken painlessly, but shall I say, less painfully than in the old days.
§ It being Four o'clock, the Motion for the Adjournment of the House lapsed, without Question put.
§ Motion made, and Question proposed, "That this House do now adjourn."—[Mr. Bing.]
§ Mr. Glenvil Hall
Therefore I would say to the hon. Gentleman that we do realise that production is essential, that it is our bounden duty, both as Members of Parliament and as the Government, to see that production is not hampered but assisted in every way, that in our view it is impossible to change the system of col- 1017 lection as he suggested, and it is certainly impossible to take Income Tax off entirely in order to make sure production is not damaged. We believe there are other ways of bringing home to the people of this country the essential truth that, if they desire a high standard of living, they themselves have to share in the production of goods and services and create the wealth and conditions which will provide that high standard of living. That is, 1018 after all, the only way. We must keep the King's Government going, and we must raise our taxes. The Government will do it in the least painful way, but I am afraid the abolition of Income Tax at any rate is neither feasible, nor would it be just.
§ Question put, and agreed to.
§ Adjourned accordingly at Two Minutes past Four o'Clock.