NEW CLAUSE.—(Superannuation Funds.) (Hansard, 21 June 1948)

§ Sir P. Bennett
I beg to move, "That the Clause be read a Second time."
This is a suggestion which we hoped to bring forward during the Committee 1063 stage, but, quite rightly, it was ruled out of Order by the Chair. The proposal has now been modified. It deals with the question of contributions by employees to pension funds which have already been approved by the Commissioners. Two types of contribution are treated differently. Contributions to the old age section of a fund are deducted from the gross wages as though they were expenses. This means that the amount of the earned income allowance is reduced where the earnings are less than £2,000 a year. The taxable income is reduced and, as a result, an allowance of 9s., 6s. 9d. or 3s. is given, according to the rate at which the employee is liable for tax. The contributions are also allowed for Surtax purposes.
On the other hand, contributions to the widows and dependents section of a fund are treated as though they were premiums on a life insurance under Section 32 of the Income Tax Act of 1918. After the amount of tax has been calculated on the income before deducting these contributions, an allowance is made. That allowance is one-half of the standard rate if the income is under £1,000, three-quarters of the standard rate if the income is between £1,000 and £2,000, and the full amount if the income is over £2,000. No allowance is made for Surtax. For administrative convenience, it would be most helpful if widows pension contributions were treated on exactly the same basis as the old age pension contribution. In the overwhelming majority of cases, the change would benefit the taxpayer. However, under our original proposal, there was a chance that a small number of taxpayers might have been called upon to pay slightly larger charges if they were paying on the 3s. limit. For that reason, it was impossible to deal with this matter in Committee.
We have overcome the difficulty by suggestion that the change might be postponed until next year. Hon. Members might ask why, if that is the case, it should be brought forward now? The answer is that it affects the coding of the employees. These codes are made at the beginning of the year, and, if this is to be considered for next year, the code would have to be worked out before that. Therefore, we put it forward now because the time of the year when the Income Tax officers are hardest 1064 pressed would not be the appropriate time to bring forward a proposal like this.

§ Mr. Pitman
I beg to second the Motion.

§ The Solicitor-General
As I understand it, the only case which has been made in support of this new Clause is that it would be rather easier for those who have to work out the proportions of payments made to pensions funds if the suggestion made in the new Clause was adopted. The answer I would make would be that it would, in fact, result in a very large number of employees in the lower income categories losing a substantial part of the relief which they get under the Income Tax Act, 1918, as the law at present stands.
The proposal is that the compulsory contributions paid by an employee to a widows' and orphans' pension fund approved by the Commissioners under Section 32 of the 1921 Finance Act, instead of ranking, as they at present do, for relief under the 1918 Act, should rank for relief under the alternative system of relief, namely, Section 32 of the 1921 Act. The effect of that would be that, instead of relief being worked out as at present under the 1918 Act—and I will remind the House in a few moments how it is so worked out—the payment made by the employee would be treated as an expense, and, therefore, deductable from his income returned for the purposes of assessment under Schedule E. That would mean that the lower income category employees would be the losers. It is perfectly true that the higher paid employees would gain on the arithmetic to a certain extent, but we feel that mere grounds of administrative convenience are not a sufficient reason for depriving the lower paid employees of a relief which hitherto they have enjoyed since the 1918 Act came into force.
The House knows that, under the 1918 Act, the figures are as follow. If the total income does not exceed £1,000, relief is given at one-half of the standard rate which with the present standard rate of tax at 9s. in the £ is 4s. 6d. in the £ If the total income is between £1,000 and £2,000, relief is given at 6s. 9d. in the £ that is to say, three-quarters of the present standard rate of tax at 9s. in the £. If the income exceeds £2,000, relief is given at the full standard rate of 9s. in the £. The way it would 1065 work out is as follows. In the case of employees whose liability to tax is only at the lower rate, that is to say, at the 3s. rate of Income Tax—which in point of fact if it is scaled down by deducting the earned income allowance, works out at 2s. 5d. in the £—in the case of an employee whose salary was low enough to make him liable to no more than 2s. 5d. in the £ the contrasting position would be this.
If he gets his relief under the 1918 Act he would be getting relief by way of repayment of tax at the rate of 4s. 6d. in the £ In other words, he would be getting a substantial measure of relief. If, however, the new Clause were accepted and the alternative system which is provided for under Section 32 of the 1921 Act were adopted, he would simply be allowed to treat his contribution to the pension fund as a deduction—that is to say, as an expense. Accordingly, it being only an expense for the purpose of his return under Schedule E, he would get no more than 2s. 5d. in the £ in that case his relief would drop from 4s. 6d. to 2s. 5d.
The question is whether administrative convenience affords a sufficient justification for taking away that measure of relief from the group of employees who can least afford to lose it. They are the lowest paid, and to them a loss of that sort is a matter of importance. We feel that no case can be made out merely on the ground of administrative convenience for depriving them of that advantage. In point of fact, so I am told, the degree of administrative inconvenience involved in separating out the proportion of the contribution which is attributable to the widows' and orphans' pension fund from the rest of the contribution which is made by the employee, is comparatively slight. In certain cases where there is a variable contribution it is more difficult to work out arithmetically, but, generally speaking, according to the Inland Revenue, at any rate, there has been comparatively little inconvenience experienced in separating out the contributions.
For that reason, having regard to the fact that it is only administrative inconvenience which is urged, and that in any case unless it was very great it would seem to be inadequate as a reason for depriving the lower-paid employees of the advantage which they at present have, we 1066 think the new Clause ought not to be accepted. I would add that in any case, so I am informed and so our experience is, the degree of inconvenience is comparatively slight, except in one very specialised case where there is a variable relation between the amount of the contribution that goes to the widows' and orphans' fund and the rest. For those reasons, I hope the House will agree that this new Clause ought not to be accepted.

§ Captain Crookshank
This is a very difficult and technical point, and I am sure the House is much obliged to the Solicitor-General for his lucid description of it. There are probably very few of us who were master of it before he spoke, and there are probably not many more who are now. As I listened to my hon. Friend the Member for Edgbaston (Sir P. Bennett) moving the new Clause, I thought it sounded as if there were some anomaly which ought to be looked at. As he put the case it seemed very strange, if the fund was for old aged pensioners and also for widows and orphans, that they should be treated differently. In view of what the right hon. and learned Gentleman has said, it does not look as if this is the right way of dealing with it. It adds to the argument, which has often been put forward, that it is about time that the Income Tax laws and reliefs were looked at again, and I hope that is one of the ambitions of the present Chancellor.

§ Sir S. Cripps
indicated assent.

§ Captain Crookshank
In view of what the right hon. and learned Gentleman has said, I should not be inclined to press this point tonight. However, I would like him to look at it between now and the next Finance Bill, to see whether in fact there ought not to be some smoothing over, provided that the smoothing over is not done to the disadvantage of any of these pensioners or potential pensioners. Perhaps my hon. Friend has performed a useful service by raising this point. It is rather a change to find a spokesman for the Government complaining against a new Clause or an Amendment on the ground that the only reason for it is administrative inconvenience, because the argument is generally put the other way. It is generally the defence of the Government that they cannot do a certain thing because of administrative inconvenience. This time they say the 1067 argument is coming from our side. I hope this question can be looked at, but I should not advise my hon. Friends to press the Clause.

§ Mr. Oliver Poole (Oswestry)
I agree that the Solicitor-General has made a point in that this is a matter purely of administrative convenience, but his argument sounded as if we would be depriving the people concerned of a very material amount. As he rightly says, it affects only those people who receive a comparatively small income and contribute towards these particular schemes. I have some slight experience of administering these schemes, and as he knows premiums are generally based on 5 per cent. of the employees' salary. Five per cent. of £300 a year and 4d. to 5d. in the pound difference in the rebate is an extremely small amount.
I think it right that the impression should not be left that if this new Clause were to be accepted, the House would be letting in for a serious reduction those employees who deserve the most benefit from the schemes. I also think the Solicitor-General is not quite right in overriding the grounds of administrative inconvenience. There are some quite considerable administrative difficulties in this case. The point I wanted to make, however, is that I do not think we should leave the House feeling that if this Clause were accepted, the loss would have been other than very small indeed to each individual employee. I do not think the House should be left to believe that if this Clause were accepted the poorer section of the community would have been heavy losers. That is quite untrue.