HC Deb 06 April 1948 vol 449 cc74-5

I now turn to the question of direct taxation reliefs. It is very generally agreed that the incidence of Income Tax upon the medium paid wage-earner and the lower salaried members of the managerial and technical staffs is such as to act as a disincentive to greater efforts in production. It has, therefore, been suggested that income tax should not be payable upon overtime earnings or bonus payments of any kind. I have examined this proposition very carefully, but have come to the conclusion that it is wholly impracticable, even if desirable. Administratively, I do not see how it could he worked out, unless a nominal basic wage were assessed for every industry and every process in the country; and that is quite an impossible task, and, anyway, would take years to perform. Nor would it be at all fair as between persons on fixed wages and salaries which include overtime, and those who get paid extra for more time worked or more production achieved in a given time.

I have, therefore, come to the conclusion that the only practicable way of removing the disincentive lies in increasing the Earned Income Relief, and, at the same time, giving reliefs on the scale of graduation, so that the great majority of all workers will be relieved from any liability at the standard rate.

I propose, in the first instance, to increase the Earned Income Relief from is present level of one-sixth, subject to a maximum allowance of £250, to one-fifth, subject to a new maximum of £400. This restores the full pre-war measure of the allowance so far as the rate is concerned, and is an improvement upon the prewar limit of £300.

This increase will not only raise the point at which liability to tax begins, and thereby relieve half a million persons from paying any income tax at all, but will, in effect, reduce the rate of tax chargeable on additional earnings. The maximum rate of tax any worker will have to pay will be 7s. 2d. in the pound, as against the present 7s. 6d. The increase in the maximum of the allowance will raise the total earned income qualifying for relief from £1,500 to £2,000, and is designed to give relief to administrative, professional, and scientific workers.

I have been most anxious to do something to assist pensioners and other old persons living on small incomes, for whom we all, I am sure, have the greatest sympathy. As pensions are dealt with as earned income for Income Tax purposes, and as the age relief for elderly persons over 65 years of age on small investment incomes up to £500 a year likewise enables them to be treated as if they were in receipt of earned incomes, both these classes will benefit from the increase in the earned income relief, as, indeed, from the further proposals which I shall make in a moment or two. I propose, in addition, to raise the exemption limit from £120 to £135, to help the smallest of these incomes.

These changes will cost £46½ million in a full year and £40 million this year.