§ Motion made, and Question proposed, "That the Clause stand part of the Bill."
§ 9.15 p.m.
§ Sir W. Wakefield
We cannot let this Clause pass without drawing attention to the heavy burden borne by a most important section of the community. I refer to those in the management and executive classes, to those in the professions, to those who provide technical services in industry—in fact, to all those who earn high salaries in the Surtax range.
With such heavy taxation there is no doubt that the best is not now being obtained from this important body of men; important because the future prosperity of our country depends upon their energy, capacity and determination to work. Those in industry know that often when there is a good job going at a high salary, men who would be fitted to fill it are not prepared to take on the extra responsibilities and work involved because the extra money they would or ought to be paid is worth nothing to them. The result is that valuable services are lost to the community.
As regards the professional classes, an artist finds that he can earn all that it is worth his while to earn by painting half a dozen pictures in the year, so here again there is a loss to the future of some fine paintings because it is not worth his while to work longer. I submit that in the fields of industry, of science and of art such high taxation is detrimental to the future of this country. Again, people in the professional, theatrical or industrial worlds often undergo long training for many years and then for a long period work at a low salary, so that the years in which they make high earnings are frequently few. Because all the money is taken away from them during that later period they have little or nothing to put aside for their old age or retirement.
I submit that is wrong, and I suggest that in the future interests of this country steps should be taken to see what can 669 be done to ease the position of this important section of our community. Any relief which it is found can be made would not cost the country anything but would in various ways be found to be an increase in the Revenue. I hope that the Chancellor and those with him at the Treasury will look again at this vitally important matter.
§ Mr. Maudling (Barnet)
The criticism that I have to make of the Clause is that it perpetuates an anomaly in our Income Tax system. Surtax continues to be charged on total income, while Income Tax is charged on taxable income. As the Committee are aware, in assessing one's liability to Income Tax, deductions are first made in respect of earned income allowance, child allowance and so on, to reach one's taxable income. It is on that taxable income that Income Tax is charged. Surtax, however, is charged on total income, which means that while in Income Tax the man with a large family pays less tax than the man with no family, or a man with an earned income pays less in Income Tax than the man with an unearned income, in Surtax the charge is entirely the same to every person irrespective of his individual circumstances.
That seems to me to be an anomaly. The fact that it is an anomaly is further illustrated by the official title which is applied to Surtax—i.e., the "higher rate of Income Tax." If Surtax, is, as it is described, a higher rate of Income Tax, it seems to me an anomaly that it should be charged on a different basis from Income Tax in the case of any particular individual. So far as I can see, there are only two arguments against removing this anomaly in our tax system. First, it might be argued that when a man is liable to Surtax these considerations are of small importance. Perhaps that contention could have been advanced when a generation ago Surtax was first introduced, but since then the value of money has fallen considerably and current rates of taxation have risen considerably.
One example is the number of incomes of £2,000 a year and over, which between 1938 and 1948 rose from 106,000 to 220,000, a good indication of the fall in the value of money. At the same time, tax rates have considerably risen, with the result that between £1,950 and 670 £2,050 a year, over the £2,000 mark, the effective rate of tax on the top part of any individual incomes leaps from 7s. 2d. in the pound to 11s. in the pound. The Chancellor has recognised, in the Income Tax concessions that he has made, the importance of avoiding abrupt steps upward in taxation because of their disincentive effect. If that is true at the lower ranges of Income Tax, it is also true, I submit, at the lower ranges of Surtax on earned incomes. Therefore, I think, the argument can be carried through.
The only other argument against abolishing this anomaly is that at present it would cost too much to do so, and that, I am prepared to accept, is probably the case. That is why I raise this point on the Motion that the Clause stand part rather than as an Amendment, but I urge the Committee and the Chancellor to bear this point in mind as an improvement in our tax system that should fee carried out when an opportunity presents itself.
§ Mr. Walter Fletcher (Bury and Radcliffe)
I should like to say a word in support of the argument which was put forward by my hon. Friend the Member for St. Marylebone (Sir W. Wakefield). It is becoming very apparent in certain aspects of trade and industry that it is increasingly difficult to get people into the highly important managing director posts because they find so often that in their previous posts, where they travelled around and were salesmen, they got a great advantage. They are able, perfectly legitimately, when they are travelling round to charge all their expenses, and their legitimate expenses, and therefore, although they may be receiving less net income which would not bring them into this category, they are in actual fact making very much more money; they are not having to pay the tax on the higher rate and they are saving a great many expenses which they would otherwise have to pay.
That is only one facet of the question, but it is a very important one and I think those interested in the direction of business and trades and industries throughout the country would support the argument about the difficulty of getting people in, people who in the end take the essential decisions which make businesses successful and help so much in our export drive. 671 This is only one of the instances of the danger of this form of taxation which is frustrating the very thing which the Government and everyone else wish to encourage.
§ Clause ordered to stand part of the Bill.