§ I come now to my Budget proposals. The advice which I have received this year has been almost unlimited. The representatives of industry, commerce and organised labour have sent me their annual suggestions; my hon. Friends and I have received many deputations from various interests affected by taxation, particularly by the duties of Customs and Excise. We have had before us the Second Report of the Royal Commission on Taxation.
§ The most obvious conclusion which my hon. Friends and myself draw from all these representations is that the sheer burden of taxation is far too great. Both from the personal angle and from that of industry, we remain one of the most heavily taxed nations in the world. I am convinced that some further lightening of the load is needed to give industry the spur to be more competitive. The question is how to choose a method of relieving the burden which is likely to increase rather than to diminish confidence in our financial policy at home and overseas.
§ I do not feel justified this year in making any general reductions in indirect taxation. I have considered carefully the representations that Purchase Tax is bearing heavily on some sections of the textile trade. Their difficulties are due to a variety of causes, not least to the loss of export markets. Today, I am dealing only with the Purchase Tax aspect of these difficulties.
§ No adjustment of Purchase Tax can be a panacea for the complex problems of any industry. But the Government have great sympathy with the difficulties which are being experienced at present in 57 Lancashire, and also in Northern Ireland. As evidence of our desire to help, I am proposing forthwith to reduce the rate of Purchase Tax by half from 50 per cent. to 25 per cent. on piece goods and sheets, towels and other household textile articles of cotton, linen, rayon and other non-wool materials.
§ An important result will be to halve the tax on quality furnishing fabrics and household textiles, and so to provide a better market for these goods, thus encouraging production and aiding exports. The D allowances which may be made from the value before calculating the tax will not be affected. These changes will take effect from midnight, and they will cost me about £2¼ million this year and £3 million in a full year.
§ The Committee will perhaps forgive a brief digression at this point about our procedure this year. The General Election will clearly involve a change in the normal practice, since there are only a few days left in the life of the present Parliament.
§ The Purchase Tax change which I have just mentioned will be effected by Treasury Order, which will be laid this evening. For the rest, there will clearly be no time for the House to consider a comprehensive Finance Bill on the usual lines—that is, a Bill covering not only the Budget changes but also any adjustments and amendments of the law for which provision can usefully be made by Parliament to maintain the structure and efficiency of the taxation system.
§ The Finance Bill that I shall propose to the House for enactment before the dissolution will be confined to such Clauses as are needed to give effect to my Budget proposals and to carry on the finances of the nation. The Budget Resolutions that I am moving today will have the same restricted scope as the Bill. In particular, we do not intend to move the general Resolution for the Amendment of the Law, on which the Budget debate normally takes place. But we shall welcome a comprehensive discussion of the Budget proposals and the financial and economic situation; and, if the Chair will permit, the usual wide debate of this nature will be founded on the last of the Resolutions.
§ The scope of the debate on the Finance Bill will, naturally, be for consideration by the Chair in due course; but, given 58 the restricted scope of the Resolutions and the Bill, I think it right to tell hon Members that there will be a corresponding restriction in the opportunities for moving Amendments and New Clauses.
§ This procedure follows the practice adopted on previous exceptional occasions of this kind. In order to help hon. Members who may find it useful to have as soon as possible the text of the Finance Bill, which would be introduced on the Budget Resolutions I am moving, I intend to lay a draft of its Clauses before the House today as a White Paper, and this will be available to hon. Members at the same time as the text of the Budget Resolutions. It will be for the next Government to consider whether any further fiscal legislation is necessary later in the year.
§ I now come to my final Budget decisions. This year I have had to bear three considerations in mind. First, if we are to continue to preserve the balance of the economy, I can afford to give away only a limited amount of my surplus. Secondly, the Budget proposals must constitute, before all else, a fresh incentive to the forces of growth and expansion. Thirdly, anything I suggest this year must, of necessity, be of a classical purity and simplicity.
§ I have considered carefully the recommendations in the Second Report of the Royal Commission on Taxation. I am very glad to be able to pay public tribute to the valuable and stimulating document which Lord Radcliffe and his colleagues have produced. In the light of their study of the graduation of the personal Income Tax, I should very much like to give some help to the family man. I should also like so to adjust the tax scales as to liberate as many people as possible from the complications of P.A.Y.E., especially where the amount of tax which it collects is very small.
§ Some of these proposals would, on margin, make no vital difference to consumer demand, but would give much needed and much deserved encouragement to individual households. So, if my first task is to lighten the sheer burden on the economy, I can think of one measure only which would enable me to combine with these objectives the type of direct incentive which I am seeking—one measure only which would be regarded as the 59 most positive and heartening encouragement to all, employers and workers alike, who can contribute energy and enterprise to the development of the economy. This is a simple orthodox reduction of 6d. in the standard rate of Income Tax, together with appropriate reductions in the lower rates.
§ No other proposal would so simply and effectively suit the needs of the moment. It has several substantial advantages. To industry, it offers the prospect of a tax relief—and I attach great importance to this—of rather more than £40 million—a relief which should give fresh encouragement to expansion and a keener edge to our competitive power. To the individual, it offers relief on existing income at all levels of tax liability; and it lightens the burden of tax on any extra income which he or she may earn by greater personal effort. I trust those who benefit to save, rather than to spend, as large a proportion as possible of what they gain. The heavier the present burden of tax, the greater the relief, and, therefore, the greater the opportunity to save.
§ The reduction of 6d. in the standard rate will be accompanied by 3d. off each of the reduced rates. In 1953, I took 6d. off all the rates, but then I was withdrawing the increase of 6d. all round which had been imposed by the previous Government in 1951. This time, I return to the tradition that reductions in the general rates of Income Tax should be broadly proportionate to the rates already borne.
§ This reduction in the rates of tax will bring relief to the individual taxpayer at all levels of income. But it will do nothing, of itself, to improve the points at which tax starts to be payable. I want, therefore, to supplement the 3d. remission in the reduced rates by an improvement on the lines suggested by the Royal Commission. I have been impressed by the principles which lie behind its proposals for relief for the smaller incomes, and I therefore propose, in addition, to exempt many of such incomes from all liability to tax by increasing the personal allowance—from £120 to £140 for a single person and from £210 to £240 for a married couple—while reducing the band of income taxable at the lowest rate from £100 to £60. By this means, I shall achieve, though in a simpler way, the 60 object the Royal Commission had in mind in proposing its scheme for a minimum earned income relief. Indeed, when hon. Members come to examine my scheme, they will find that, in most cases, the new starting points of liability will be appreciably higher than in the less far-reaching of the two schemes put forward by the Royal Commission.
§ Moreover, I shall apply the principle of this relief to small investment incomes—a class very deserving of help—by increasing the limit for the small income relief, under which small investment incomes are treated as earned, from £250 to £300.
§ Finally, I have made room, within this scheme of relief, for the family man. For him, I propose an increase in the child allowance from £85 to £100. At the same time, I propose to remove the special earnings limit applying to apprenticed children so that the same income limit will apply to all children. I am grateful to hon. Members who proposed these sorts of reform last year.
§ Here again, the relief which I am offering is a step along the road marked out by the Royal Commission, and is, moreover, free from the practical and administrative difficulties of its own scheme. I put this proposal forward as further evidence of my firm intention to do all I can to help parents of families, on whom the present load of taxation falls with especially discouraging severity, especially when they have several children to educate.
§ For the reasons which I have given throughout my speech I cannot go further, for the time being, either in reducing the total burden of taxation or in adopting the other improvements in graduation which the Royal Commission recommended. But the effect of the changes which I am proposing will be that in terms of earned income, the starting point of liability to tax will be raised for the single person, from £155 to £180; for a married man with no children, from £270 to £309; for a married man with two children, from £489 to £566; and for the married man with four children, from £707 to £823. No fewer than 2,400,000 taxpayers will be removed from liability altogether—to the considerable relief not only of themselves but also of the Board of Inland Revenue—and the load will be lightened on all those who remain liable.61
§ Full details can be studied by hon. Members in the Financial Statement.
§ Alterations will have to be made to code numbers, to take account of the increased personal allowances and also of revised National Insurance contributions. This will be done as rapidly as possible, and for the purpose of P.A.Y.E. deductions the tax changes will become effective on the first pay day after 5th July.
§ In total, my proposals are estimated to cost £134 million in 1955–56, and £155 million in a full year. These are substantial and valuable remissions of taxation. Yet they leave me budgeting for a surplus of no less than £148 million. Rather more than half the surplus with which I began should survive at the end. This fact is, in itself, evidence of my conviction that, this year, we must set clear limits to the distribution of tax reliefs, if the continuing growth of the economy is to be nourished from firm and healthy roots.
§ Nevertheless, the reliefs which I have proposed are not, I think, wholly inconsiderable. They carry one stage further a process of liberation which, in the course of four Budgets, has reduced the standard rate of Income Tax by 1s., has improved the earned income relief and the age relief, has twice increased the personal allowances and the child allowance, and has provided successive measures of practical incentive to productive investment. By this Budget the Government are leading the Committee and the people of this country further along the road of confident expansion.
§ I am satisfied that the world at large will applaud our continuing climb back to the uplands of prosperity, and I rely on our people to respond to the trust which I have placed in their sure and steady steps.
§ 1. Income Tax (Charge and Rates for 1955–56)
§ Motion made,
§ That income tax for the year 1955–56 shall be charged at the standard rate of eight shillings and sixpence in the pound, and, in the case of an individual whose total income exceeds two thousand pounds, at the same higher rates in respect of the excess as were charged for the year 1953–54;
§ But the amounts of tax deductible or repayable under section one hundred and fifty-seven (pay-as-you-earn) of the Income Tax Act, 1952, shall, until the sixth day of July, nineteen hundred and fifty-five, be the same as if the 62 standard rate were nine shillings in the pound (any necessary correction being made on or after that day by adjusting subsequent deductions or repayments under that section, or, if need be, by an assessment);
§ And it is hereby declared that it is expedient in the public interest that this Resolution should have statutory effect under the provisions of the Provisional Collection of Taxes Act, 1913—[Mr. R. A. Butler.]
§ The CHAIRMAN put the Question thereupon forthwith, pursuant to Standing Order No. 86 (Ways and Means Motions and Resolutions).
§ Question agreed to.
§ The CHAIRMAN then proceeded succes-sively to put forthwith the Question on each further Motion made by a Minister of the Crown, save the last Motion.
§ 2. Income Tax (Personal Reliefs)
That, as regards personal reliefs for individuals, the Income Tax Act, 1952 (referred to below as "the main Act") and the Acts amending it shall be amended as shown in the Schedule to this Resolution;
But the amounts of tax deductible or repayable under section one hundred and fifty-seven (pay-as-you-earn) of the main Act shall, until the sixth day of July, nineteen hundred and fifty-five, be the same as if those amendments had not been made (any necessary correction being made on or after that day by adjusting subsequent deductions or repayments under that section, or, if need be, by an assessment).