HC Deb 22 June 1948 vol 452 cc1230-9
Mr. Eccles

I beg to move, in page 34, line 15, after "exceed," to insert "three-quarters of."

Here, after 10 days, we are back again to our old enemy the Special Contribution. We consider that the present provisions of the Clause for giving marginal relief where the person's income just exceeds £2,000 operate very harshly. So long as his total income remains within the marginal relief bracket he pays a contribution of 100 per cent. on so much of his income earned and unearned as exceeds the exemption limit. The effect is that where a man's income is just over £2,000 any moderate increase becomes a disadvantage, since he has to pay Income Tax and Surtax on that increase as well as being liable to pay as Special Contribution an amount equal to the whole of it.

There is a marginal relief in the Clause but, in our view, it does not act properly. It makes it come about that a man had better not have earned any income at all. I can give a series of examples with figures showing that there are many cases where it would pay a man to stay at home and not earn an income. I am suggesting that we should insert the words "three-quarters." The effect of doing so is to graduate the imposition of the tax in the early stages of collection. That means that the relief will be stepped up to a point where a man has £3,200 a year and after £3,200 a year he gets no marginal relief at all.

My Amendment would not in any way diminish the tax on a person whom one might describe as a rich man, but it would not fall with such a tremendous blow between £2,000 and £3,200. It would have the desirable effect of not taking away from a man on account of the Contribution more than he earned in the low bracket of the Special Contribution. I believe the Chancellor never meant the tax to work in such a way that it would result in its being a disadvantage to earn money at all. I hope that as this proposed change is very modest, it will be accepted.

Mr. Selwyn Lloyd

I beg to second the Amendment.

The ground was fairly covered during the Committee stage although I did not succeed on that occasion in making the Solicitor-General fully cognisant of my argument. I should have thought it would be possible for both right hon. and learned Gentlemen to go with us so far as to agree that it should definitely not be a financial disadvantage to a person that he has worked. I gave certain examples to the Committee and showed that for a man with £800 earned income and an unearned income of £2,000 it was a financial disadvantage to him that he had worked in the year in question. I was told that it would have been even more striking in the case of a man with £2,000 unearned income and a rather smaller earned income. I should think it not too much to expect the Chancellor to agree that he does not desire anyone to suffer financial disadvantage because he worked during the relevant year. The Chancellor should be grateful to my hon. Friend the Member for Chippenham (Mr. Eccles) for this ingenious Amendment. Our Amendment on the Committee stage perhaps went too far, but this Amendment meets both points of view and I hope the Chancellor will accept it.

Sir S. Cripps

I think this Amendment proceeds upon a false assumption. As I have said on other occasions, this is not a tax on income; it is a tax on capital, which is assessed by virtue of the amount of income. It is not right to look at the income except first to see whether it is above £2,000 because that is the exemption. No one with an income under £2,000 is to be subject to this tax. If one wished to vary the case of the person getting an income of £2,000 in their favour, one should raise the exclusion limit which we think is already high enough.

8.30 p.m.

On the other hand, it is obviously desirable in all cases of this kind to have some marginal provision. Otherwise there is a marked disparity between two persons, one of whom has £1,999 a year and the other £2,001. That striking disparity between two friends, two brothers or two other people may lead people to feel that something is wrong with the tax, although in fact it works out perfectly correctly. Therefore, it is customary in these cases to have some margin over which that disparity is spread. Under the provisions of this Bill that margin goes from £2,000 to £2,700. That is a very appreciable margin.

If the proposal of this Amendment were accepted it would have the effect of raising the margin to £3,200. We think that that is not justified as a marginal provision. Once it has been decided that £2,000 is the right limit of chargeability, that is to say, that a person has to have more than £2,000, it is not reasonable to add above that figure a marginal limit of £1,200. That is out of all proportion for a marginal limit. If it was desired to do that and to include people higher up in the scale the exclusion limit would have to be raised to £2,500, and the marginal limit put above that, so giving a limit of £3,200. This Amendment is attempting to do something in quite the wrong way. If this is, as the hon. Member for Chippenham (Mr. Eccles) admitted it was, a marginal provision, it would be out of all proportion to make a marginal provision which goes to 60 per cent. above the original figure and makes the figure of £2,000 into £3,200. Therefore I regret that I am unable to accept this Amendment.

Mr. Pitman

We should be greatly helped in this matter if the Chancellor would say what view he takes of the Amendment which immediately follows this one, because if I take his point correctly it is that there is a real objection to this proposal in that it raises the margin to the critical point of £3,200. The main point with about which we on this side of the House are concerned relates to the man who is earning a sum which brings him into the ambit of the Special Contribution, and we wish by some means, whether by this Amendment or the next one, to see that such a man is not penalised solely by reason of the fact that he works.

The Chancellor has said that this is a tax on capital and that the capital is assessed in terms of income. But he has omitted an important consideration, that there is a third factor, that it is a tax which is set in action by a trigger, the trigger being an income of £2,000 per year and over, and that the trigger can be pulled by a man working. What we feel is so clearly wrong is that of two people with identical capital behind them one should be taxed to the extent of a large sum merely because in addition to owning his capital he has the decency and social spirit to go out to work.

I have shown to the Chancellor a letter from a well-known public man, Sir Ernest Barker, who went, I think I am right in saying, at the request of the Government to Germany. He did a really fine job of work in Cologne University. In the letter he has given the figure he earned by going to Germany as £650. Merely because he went to Germany he is, so far as I understand it, to be charged £699 10s. in tax. He is an elderly man, and if he had remained at home in comfort and not responded to the call of duty—and it was a very courageous action to respond to the call of duty in that case—he would have paid no tax at all because his income would have been below the £2,000 mark. Merely by reason of the fact that he took on this job he pulled the trigger which brought under taxation the whole of the income which otherwise would not have been brought under that taxation at all.

We are asking that the marginal case should really take care of instances of this kind and we have put down two Amendments. The first would achieve this object, that is if a person was not to be taxed more than three-quarters of his in- come over £2,000 then his tax would be reduced and he would get some benefit instead of incurring a penalty for having worked. Similarly he would be covered under the next Amendment. But—and this is the point which we wish the Chancellor to bear in mind—we think that the people of this nation expect a tax system to be fair and reasonable but they do not accept as fair and reasonable a situation in which if two people have identical capital one is let off and is taxed nothing in respect of what is purported to be a capital levy solely because he does not work, whereas the other is taxed on his capital solely because he works.

There is a great onus on the Government to put forward taxes which are ethically acceptable. It seems to me that to tax more than the sum earned is so clearly unacceptable that I should like the Chancellor to say whether he accepts this general thesis which is being put to him. My hon. Friend has already given one instance, and has said quite rightly that if the investment income is £2,000 and the earnings small, the result is even more spectacular. I have given the Chancellor a specific case of a well-known public character and he has had an opportunity of looking at the figures. Would he tell us whether he can give and how he proposes to give relief in such cases?

Amendment negatived.

Mr. Eccles

I beg to move, in page 34, line 16, at the end, to insert: and in the case of an individual whose total income for the said year included earned income the contribution shall not exceed the amount of contribution which but for the existence of such earned income would have been chargeable by an amount greater than the amount of such earned income less the income tax including surtax appropriate thereto on the footing that such earned income is regarded as the highest part of the individual's total income. My hon. Friend the Member for Bath (Mr. Pitman), has made a most excellent case for this excellent Amendment. Therefore, I propose to move it formally.

Lieut.-Commander Braithwaite

I beg to second the Amendment.

Sir S. Cripps

This matter has also been dealt with on a previous occasion, and substantially in connection with the last Amendment. The principle is really just the same. It is two methods of arriving at a similar result. The object of this Amendment is in the same way to try to extend the marginal relief of which the hon. Member for Bath (Mr. Pitman) spoke at the end of his speech on the last Amendment. We see no reason for extending the marginal relief in this way any more than extending it in the other way.

The criterion of whether the capital should be taxed is primarily whether it produces more than £250 a year in interest. Even if it does that we say that a person with an income of less than £2,000 should not have to pay this tax at all. The criterion as to the amount of tax depends on the amount of investment income and not on the amount of total earnings. This exemption on the amount of total earnings is for the purpose of not weighing hardly in a tax of this sort on people with an income of less than £2,000. Therefore, there is really no reason why we should differentiate between earned and unearned income. It is a question of whether the person has £2,000 in a year as income, because if he has not it is a case where he would not have to pay anything whatever his investment income might happen to be.

The corollary of what the hon. Member is suggesting is that we should do away with the £2,000 altogether and put it only on investment and everybody who has more than £250 investment income, whatever their income, should pay this even if they have only an income of £250. We have avoided that by putting in the totality of the combined income as a measure below which they should not pay. We believe that is a perfectly fair way of imposing the tax.

Mr. Stanley

I did not intervene in the discussion on the preceding Amendment because I thought that this one more exactly expressed the grievance which we wish to remedy. The right hon. and learned Gentleman definitely admits now

what has never been admitted before, that this is a tax on capital. I have heard the Chancellor and the Economic Secretary explain at great length that this is a tax on income which in some cases might be only possible or convenient to pay from capital. I have heard it explained, at any rate, in the lower ranges that it is expected that this will be paid from income. However, now it is admitted to be nothing less than a tax on capital.

What we ask in this Amendment is that the tax on a man's capital should not increase because of a fortuitous increase in his income which has no relation whatever to the capital. We say that if a tax is to be judged from the form of income then an increase in income which can only arise from an increase in capital may be called to support an increase of tax. But when there is an increase in income which has no relation to the increase in capital we say it is quite wrong that this now admitted capital tax shall be increased because of that higher income. The Amendment is designed to prevent that happening. I trust that although, in order to save time, we have discussed this succinctly, my hon. Friends will be prepared to take this to a Division.

Mr. Pitman

The Chancellor has not met the point about the trigger. It seems to me to be perfectly clear that everything he has said is reasonable and straightforward provided he has not this operative factor of the trigger. But he has a situation in which this tax is set in motion solely by reason of the fact that the man is earning. The tax, under our Amendment, would not exceed what he ought to pay under what would be normally recognised on both sides of the House as being fair.

Question put, "That those words be there inserted in the Bill."

The House divided: Ayes, 107; Noes, 285.

Division No. 239.] AYES. [8.47 p.m.
Agnew, Cmdr. P. G. Channon, H. Fyfe, Rt. Hon. Sir D. P. M.
Assheton, Rt. Hon. R. Clarke, Col. R. S. Gage, C.
Baldwin, A. E. Clifton-Brown, Lt.-Col. G. Galbraith, Cmdr. T. D.
Beamish, Maj. T. V. H. Conant, Maj. R. J. E. Gomme-Duncan, Col. A.
Bennett, Sir P. Crookshank, Capt. Rt. Hon. H. F. C. Gridley, Sir A.
Birch, Nigel Crowder, Capt. John E. Grimston, R. V.
Bossom, A. C. Dower, E. L. G. (Caithness) Harris, F. W. (Croydon, N.)
Bower, N. Drayson, G. B. Headlam, Lieut.-Col. Rt. Hon. Sir C.
Boyd-Carpenter, J. A. Dugdale, Maj. Sir T. (Richmond) Hogg, Hon. Q.
Braithwaite, Lt.-Comdr. J. G. Duthie, W. S. Hollis, M. C.
Buchan-Hepburn, P. G. T. Eccles, D. M. Holmes, Sir J. Stanley (Harwich)
Byers, Frank Fletcher, W. (Bury) Howard, Hon. A.
Challen, C. Fox, Sir G. Hurd, A.
Hutchison, Lt.-Cm. Clark (E'b'rgh W.) Morris, Hopkin (Carmarthen) Spence, H. R.
Hutchison, Col. J. R. (Glasgow, C.) Nicholson, G. Stanley, Rt. Hon. O.
Jarvis, Sir J. Odey, G. W. Stoddart-Scott, Col. M.
Jeffreys, General Sir G. O'Neill, Rt. Hon. Sir H. Sutcliffe, H.
Joynson-Hicks, Hon. L. W. Orr-Ewing, I. L. Taylor, C. S. (Eastbourne)
Langford-Holt, J. Osborne, C. Taylor, Vice-Adm. E. A. (P'dd't'n, S.)
Law, Rt. Hon. R. K. Pete, Brig. C. H. M. Teeling, William
Legge-Bourke, Maj. E. A. H. Pickthorn, K. Thornton-Kemsley, C. N.
Lennox-Boyd, A. T. Pitman, I. J. Thorp, Brigadier R. A. F.
Lipson, D. L. Ponsonby, Col. C. E. Turton, R. H.
Lloyd, Maj. Guy (Renfrew, E.) Poole, O. B. S. (Oswestry) Vane, W. M. F.
Lloyd, Selwyn (Wirral) Prior-Palmer, Brig. O. Walker-Smith, D.
Low, A. R. W. Raikes, H. V. Wheatley, Colonel M. J. (Dorset, E.)
Lucas-Tooth, Sir H. Ramsay, Maj. S. White, Sir D. (Fareham)
MacAndrew, Col. Sir C. Rayner, Brig. R. Williams, C. (Torquay)
Mackeson, Brig. H. R. Reid, Rt. Hon. J. S. C. (Hillhead) Williams, Gerald (Tonbridge)
Macpherson, N. (Dumfries) Robertson, Sir D. (Streatham) Willoughby de Eresby, Lord
Manningham-Buller, R. E. Ropner, Col. L. Winterton, Rt. Hon. Earl
Marples, A. E. Ross, Sir R. D. (Londonderry) York, C.
Marsden, Capt. A. Sanderson, Sir F. Young, Sir A. S. L. (Partick)
Marshall, D. (Bodmin) Scott, Lord W.
Mellor, Sir J. Shepherd, W. S. (Bucklow) TELLERS FOR THE AYES:
Molson, A. H. E. Smith, E. P. (Ashford) Mr. Drewe and
Moore, Lt.-Col. Sir T. Spearman, A. C. M. Mr. Studholme.
Acland, Sir Richard Davies, Edward (Burslem) Harrison, J.
Adams, Richard (Batham) Davies, Ernest (Enfield) Haworth, J.
Adams, W. T. (Hammersmith, South) Davies, Harold (Leek) Henderson, Rt. Hn. A. (Kingswinford)
Alpass, J. H. Davies, Haydn (St. Pancras, S.W.) Henderson, Joseph (Ardwick)
Attewell, H. C. Davies, R. J. (Westhoughton) Herbison, Miss M.
Austin, H. Lewis Deer, G. Hicks, G.
Awbery, S. S. de Freitas, Geoffrey Hobson, C. R.
Ayles, W. H. Diamond, J. Holman, P.
Bacon, Miss A. Debbie, W. Holmes, H. E. (Hemsworth)
Baird, J. Dodds, N. N. House, G.
Balfour, A. Donovan, T. Hoy, J.
Barnes, Rt. Hon. A. J. Driberg, T. E. N. Hubbard, T.
Barstow, P. G. Dugdale, J. (W. Bromwich) Hudson, J. H. (Ealing, W.)
Barton, C. Durbin, E. F. M. Hughes, Emrys (S. Ayr)
Battley, J. R. Ede, Rt. Hon. J. C. Hughes, Hector (Aberdeen, N.)
Bechervaise, A. E. Edwards, Rt. Hon. Sir C. (Bedwellty) Hughes, H. D. (W'lverh'pton, W.)
Ballenger, Rt. Hon. F. J. Edwards, John (Blackburn) Hynd, H. (Hackney, C.)
Benson, G. Edwards, N. (Caerphilly) Hynd, J. B. (Attercliffe)
Beswick, F. Edwards, W. J. (Whitechapel) Irving, W. J. (Tottenham, N.)
Bing, G. H. C. Evans, Albert (Islington, W.) Jenner, B.
Binns, J. Evans, E. (Lowestoft) Jay, D. P. T.
Blenkinsop, A. Evans, S. N. (Wednesbury) Jeger, G. (Winchester)
Blyton, W. R. Ewart, R. Jenkins, R. H.
Bowden, Flg. Offr. H. W. Fairhurst, F. Jones, D. T. (Hartlepools)
Bowles, F. G. (Nuneaton) Farthing, W. J. Jones, Elwyn (Plaistow)
Braddock, Mrs. E. M. (L'pl. Exch'ge) Fernyhough, E. Jones, P. Asterley (Hitchin)
Bramall E. A. Field, Capt. W. J. Keenan, W.
Brook, D. (Halifax) Fletcher, E. G. M. (Islington, E.) Kenyon, C.
Brooks, T. J. (Rothwell) Follick, M. Key, Rt. Hon. C. W.
Brown, George (Belper) Foot, M. M. King, E. M.
Brown, T. J. (Ince) Forman, J. C. Kinley, J.
Bruce, Maj. D. W. T. Fraser, T. (Hamilton) Kirby, B. V.
Buchanan, Rt. Hon. G. Freeman, Peter (Newport) Kirkwood, Rt. Hon. D.
Burden, T. W. Gaitskell, Rt. Hon. H. T. N. Lawson, Rt. Hon. J. J.
Burke, W. A. Gallacher, W. Lee, F. (Hulme)
Callaghan, James Canley, Mrs. C. S. Lee, Miss J. (Cannock)
Carmichael, James Gibbins, J. Leonard, W.
Chamberlain, R. A. Gibson, C. W. Leslie, J. R.
Champion, A. J. Gitzean, A. Levy, B. W.
Chetwynd, G. R. Glanville, J. E. (Consett) Lindgren, G. S.
Cluse, W. S. Gooch, E. G. Lindsay, K. M. (Comb'd Eng. Univ.)
Cobb, F. A. Greenwood, A. W. J. (Heywood) Lipton, Lt.-Col. M.
Cocks, F. S. Grunion, D. R. Logan, D. G.
Coldrick, W. Grey, C. F. Longden, F.
Collindridge, F. Griffiths, D. (Rother Valley) Lyne, A. W.
Collins, V. J. Griffiths, Rt. Hon. J. (Llanelly) McAllister, G.
Colman, Miss G. M. Griffiths, W. D. (Moss Side) McEntee, V. La T.
Comyns, Dr. L. Guest, Dr. L. Haden McGhee, H. G.
Cook, T. F. Gunter, R. J. McGovern, J.
Cooper, Wing-Comdr. G. Guy, W. H. Mack, J. D.
Corbel, Mrs. F. K. (Camb'well, N.W.) Haire, John E. (Wycombe) McKay, J. (Wallsend)
Cove, W. G. Hale, Leslie McKinlay, A. S.
Crawley, A. Hall, Rt. Hon. Glenvil McLeavy, F.
Crossman, R. H. S. Hamilton, Lieut.-Col. R. Macpherson, T. (Romford)
Daggar, G. Hannan, W. (Maryhill) Mainwaring, W. H.
Daines, P. Hardman, D. R. Mallalieu, E. L. (Brigg)
Dalton, Rt. Hon. H. Hardy, E. A. Mallalieu, J. P. W. (Huddersfield)
Mann, Mrs. J. Rankin, J. Tiffany, S.
Manning, C. (Camberwell, N.) Rees-Williams, D. R. Timmons, J.
Manning, Mrs. L. (Epping) Reeves, J. Titterington, M. F.
Marshall, F. (Brightside) Reid, T. (Swindon) Tolley, L.
Mathers, Rt. Hon. George Rhodes, H. Tomlinson, Rt. Hon. G.
Mellish, R. J. Richards, R. Turner-Samuels, M.
Messer, F. Ridealgh, Mrs. M. Ungoed-Thomas, L.
Middleton, Mrs. L. Roberts, Goronwy (Caernarvonshire) Vernon, Maj. W. F.
Millington, Wing-Comdr. E. R. Ross, William (Kilmarnock) Viant, S. P.
Mitchison, G. R. Royle, C. Wadsworth, G.
Monslow, W. Scollan, T. Walker, G. H.
Moody, A. S. Scott-Elliot, W. Warbey, W. N.
Morris, Lt.-Col. H. (Sheffield, C.) Shackleton, E. A. A. Watkins, T. E.
Moyle, A. Sharp, Granville Watson, W. M.
Murray J. D. Shawcross, C. N. (Widnes) Weitzman, D.
Nally, W. Shawcross, Rt. Hn. Sir H. (St. Helens) Wells, P. L. (Faversham)
Neal, H. (Clay Cross) Shurmer, P. Wells, W. T. (Walsall)
Nichol, Mrs. M. E. (Bradford, N.) Silverman, J. (Erdington) Westwood, Rt. Hon. J.
Nicholls, H. R. (Stratford) Simmons, C. J. Wheatley, Rt. Hn. John (Edinb'gh, E.)
Noel-Baker, Rt. Hon. P. J. (Derby) Skinnard, F. W. White, C. F. (Derbyshire, W.)
Noel-Buxton, Lady Smith, C. (Colchester) White, H. (Derbyshire, N.E.)
Oldfield, W. H. Smith, Ellis (Stoke) Whiteley, Rt. Hon. W.
Oliver, G. H. Solley, L. J. Wigg, George
Orbach, M. Sorensen, R. W. Wilkes, L.
Paling, Rt. Hon. Wilfred (Wentworth) Soskice, Rt. Hon. Sir Frank Wilkins, W. A.
Palmer, A. M. F. Steele, T. Willey, O. G. (Cleveland)
Pargiter, G. A. Stewart, Michael (Fulham, E.) Williams, J. L. (Kelvingrove)
Parkin, B. T. Stross, Dr. B. Williams, R. W. (Wigan)
Paton, Mrs. F. (Rushcliffe) Stubbs, A. E. Williams, W. R. (Heston)
Paton, J. (Norwich) Swingler, S. Willis, E.
Pearson, A. Sylvester, G. O. Woodburn, Rt. Hon. A.
Peart, T. F. Symonds, A. L. Woods, G. S.
Popplewell, E. Taylor, R. J. (Morpeth) Wyatt, W.
Porter, E. (Warrington) Taylor, Dr. S. (Barnet) Yates, V. F.
Porter, G. (Leeds) Thomas, D. E. (Aberdare) Young, Sir R. (Newton)
Pryde, D. J. Thomas, I. O. (Wrekin) Zilliacus, K.
Pursey, Comdr. H. Thomas, George (Cardiff)
Randall, H. E. Thorneycroft, Harry (Clayton) TELLERS FOR THE NOES:
Ranger, J. Thurtle, Ernest Mr. Snow and
Mr. George Wallace.