§ (1) Notwithstanding the provisions of the proviso to subsection (1) of section eight of the Friendly Societies Act, 1896, and of subsection (1) of section forty-one of the same Act as amended by subsections (1) and (2) of 305 section five of the Industrial Assurance and Friendly Societies Act, 1948 (which limit the amount of an annuity to be granted and paid by a registered friendly society to one hundred and four pounds per annum), a registered friendly society may contract with any person for the assurance of an annuity of any amount subject to the provisions of subsections (2) and (3) of section eighteen of this Act.
§ (2) Subsection (1) of section four hundred and forty of the Income Tax Act, 1952, shall be amended by the addition of the following words "notwithstanding that the amount of the annuity exceeds one hundred and four pounds a year".—[Mr. McAdden.]
§ Brought up, and read the First time.
§ Mr. McAdden
I beg to move, That the Clause be read a Second time.
I feel much more confident in moving the Second Reading of this new Clause than might otherwise have been the case, because in it I am not asking for any financial concession from the Chancellor. All I seek to do is to try to bring about a system of justice as between the friendly societies and the insurance companies, following upon the Chancellor's Budget proposals with regard to annuities and matters of that description.
I do not need to detain the Committee to explain what friendly societies are, except to say that they are associations of persons who by their voluntary contributions provide for insurance against death, old age, sickness, and unemployment. The activities of the friendly societies are divided into two groups—the collecting societies and the friendly orders or lodges. The former are the people who go from door to door collecting subscriptions, whereas in the latter case subscriptions are paid at the meeting places of the lodges.
These societies, which originated in the early 19th century, have enjoyed the support of successive Governments who have recognised the tremendous amount of work they do in encouraging thrift among the people. In return for their registration and acceptance of a code of conduct, they enjoy certain privileges regarding Income Tax and, in return, the whole of the investments of the friendly societies, with the exceptions of property and buildings, have to be invested in trustee securities in the gilt-edged market.
The chief privilege which they have enjoyed is exemption from Income Tax under Schedules A, C and D, but one of the restrictions under which they have to operate is that on endowments they are 306 limited to a figure of £500, and on annuities they are limited to £104 per annum. Further, one is not able to take out an annuity or an endowment in more than one friendly society, and the figures I have quoted are total amounts for all friendly societies.
My right hon. Friend the Chancellor of the Exchequer has told us repeatedly during the Committee stage of this Bill, as he did during his Budget speech, that it is his object to encourage self-employed and non-pensionable persons to make provision for themselves in later life. It is proposed in this Bill that there should be relief on premiums, and that relief should be given to insurance companies from Income Tax on that part of their investment income deriving from this class of business.
On the other hand, there is no restriction on insurance companies either on the benefits which they are able to pay or the way in which they can dispose of their investments. They are, therefore, able to get a higher yield from their investments than is available to the friendly societies and, as I have said, they are not restricted as to the benefits which they can pay.
In view of the fact that, by the Chanceller's proposals, insurance companies are being given the same concession on Income Tax upon their investments as is at present accorded to the friendly societies, it seems to me to be eminently reasonable that the friendly societies should be placed upon all fours with them as regards the acquisition of new business in the light of the proposals of the Chancellor.
It can further be argued that the present restriction of annuities to £104 per annum is totally inadequate for people who are not able to get pensions from any other source. I am sure the Committee will agree that an annuity of £104 per annum is grossly inadequate, and that the friendly societies should not continue to be tied to this figure.
I am sure that it is the object of my right hon. Friend to do what he can to help people with modest means, and people who are members of friendly societies are in the main people of modest means. Millions of homes are visited every week by the collectors of the friendly societies. The size of their business and the encouragement which they give to saving can be gauged from the 307 fact that the funds which they hold increased in 1954 by £14 million to a total of £232 million, and that one-half of their funds are invested in Government and municipal securities.
I hope that my right hon. Friend will agree with me that this is a reasonable proposal. It is drawing attention to the fact that insurance companies are now being given certain privileges which they did not have before, and are being given the opportunity of new business which was not available to them previously. In these changed circumstances, seeing that they have been placed upon all fours, from an Income Tax point of view, on this part of their business with the friendly societies, it is only fair that the latter should be able to compete in this market for the considerable new business which we hope will eventuate from the proposals of the Chancellor.
One further point. The matter is of some urgency. It will be useless if it is delayed, so that the insurance companies are able to scoop the pool before the friendly societies come into the market. I hope, therefore, that my right hon. Friend will look with sympathy at the proposed Clause. If, for some reason or another, the wording is unacceptable, I hope that he will be able to say that he will look at this matter carefully to ensure that, when the full benefit of his proposal is available to the public, people will be able to purchase these annuities, or these endowments, not only through insurance companies but through the friendly societies competing upon equal terms.
§ 5.15 p.m.
§ Mr. H. Brooke
I think the Committee may well feel that my hon. Friend the Member for Southend, East (Mr. McAdden) has drawn attention to a good point. The position is that the £104 limit was imposed originally on friendly societies to prevent them, since they are exempted from tax on their income, from having an unfair advantage over the life assurance companies which hitherto have been taxable on the whole of their investment income, if the friendly societies were to go into the realm of larger annuities. As my hon. Friend has pointed out, Clause 20 proposes to exempt assurance companies from tax on so much of their 308 income as relates to the annuities of self-employed persons. That, of course, alters the balance, and it removes the ground for the old limits on friendly society annuities as far as the self-employed are concerned.
I must tell my hon. Friend that his proposed Clause is not altogether right in its wording. I shall be grateful, therefore, if he will be willing to withdraw it. If he does so, I can undertake that the Government will go into the matter thoroughly before the Report stage, with a view to seeing whether we can put down a new Clause on Report which will meet his point.
§ Dr. Horace King (Southampton, Itchen)
It is a pleasure to be prevented from making an appeal to the right hon. Gentleman by the Financial Secretary himself rising and stating the case much better than any back bencher in this Committee could do. I am delighted to hear the suggestion of the Financial Secretary. As he pointed out, this is merely a question of giving the old annuity, restricted as it was under law, something like its equivalent value. I am sure that the hon. Member for Southend, East (Mr. McAdden) will be as delighted as I am with the reply which has been given.
§ Mr. Mitchison
For myself I am bound to say that I would accept this suggestion with more enthusiasm if there had not been such a chilly attitude on the Government benches towards other forms of saving which, though of course they are quite different in form, seem to me to be in substance not unconnected with the kind of work which the friendly societies are doing. Indeed, the chilly attitude towards municipal banks, co-operative deposits and similar matters contrasts a little unfortunately with what has been said in respect of this proposed Clause. None the less, one cannot but see the force of it. There appears to be a very good reason for it and, so far as it goes, we on this side of the Committee would agree with it, but there is one question I want to ask the right hon. Gentleman.
The major point here is that, subject to this limitation of £104 a year for an annuity, there is exemption from Income Tax for certain friendly societies. That is contained in Section 440 (1) of the Income Tax Act, 1952. Subsection (2) provides in almost exactly the same 309 language similar exemption, similarly limited, for a registered trade union. At first sight I am a little puzzled as to why the proposed Clause refers only to the friendly society when a registered trade union, itself doing similar business, is not included within its terms. I should like to have, if I may, the assurance of the right hon. Gentleman that the benefit which is to be conferred on friendly societies is also to be conferred on the trade unions mentioned in Section 440 (2) of the 1952 Act. It is exactly the same except that, in the nature of the case, Schedule A does not apply to them and does apply to the friendly societies. Otherwise there is the same type of business, the same form of limitation. I hope that before this matter is disposed of the right hon. Gentleman will give me an answer for the Government.
§ Mr. H. Brooke
I was addressing myself to the Clause on the Amendment Paper. I said that if it were withdrawn a new Government Clause would be put down on the Report stage and that, of course, will be open to debate. It will be possible then for the hon. and learned Gentleman, if he wishes, to oppose it or to support it or to move any Amendment that he wishes. But I should be getting out of order if on this Clause, which concerns one narrow point, I ranged widely over the questions which he has raised. As I have said, they would be brought into order if he wished to move an Amendment to any subsequent Clause which could be put down.
§ Mr. Mitchison
Of course, Sir Gordon, I am in your hands on questions of order, as is the right hon. Gentleman. However, this proposed Clause has been brought forward to deal with a special exemption from Income Tax given in one Section of the Income Tax Act described by one title "Exemption for certain friendly societies and trade unions". I do not want to be nasty about it, but when the Tory Party proposes that this exemption should be extended for friendly societies but not for trade unions doing similar business, we wonder where we are getting.
I ask the right hon. Gentleman again, and I do not think he would be out of order in answering, whether he intends to confine the benefit he now proposes to the friendly societies mentioned in Subsection (1), or to extend it to the trade unions 310 mentioned in Subsection (2) of Section 440 of the Income Tax Act, 1952. The right hon. Gentleman need only say "Yes" or "No", and does not apparently propose to say even that.
§ Mr. Ellis Smith (Stoke-on-Trent, South)
Before the Motion is withdrawn, I should like to ask for your guidance, Sir Gordon. Surely it would be in order for my hon. and learned Friend the Member for Kettering (Mr. Mitchison) to ask the Financial Secretary to give an undertaking before the Clause is withdrawn that, where a trade union is carrying out friendly society work, it will be treated on the same basis as a friendly society?
§ Mr. Mitchison
Further to the point of order. Would it be in order for the right hon. Gentleman to answer the question which I put to him if he chose to do so?
§ Mr. Mitchison
Then perhaps I may assume, since the question was not out of order, that the answer to it would not be out of order either, and that it is merely natural or political obduracy that prevents the right hon. Gentleman from answering our reasonable request.
§ Mr. H. Brooke
No, Sir Gordon, there is no obduracy at all. It is political caution. The hon. and learned Gentleman has raised a question which is not contained in the Clause before the Committee. He should know well enough that one does not stand at the Dispatch Box and make a pronouncement which one has not had time to examine thoroughly. We shall, of course, examine his point before placing a Clause on the Order Paper.
§ Mr. Mitchison
I am very glad to hear that from the right hon. Gentleman. I must say that I should have attributed a little more foresight and forethought to him and his advisers and would have thought that they would have looked at the Section of the Income Tax Act, 1952. Presumably even the Treasury does not know it all off by heart. To discover that the Section related to exemption for certain friendly societies and trade unions, and that here was a Tory Amendment dealing with friendly societies only, and to suppose that the 311 Opposition would not mention trade unions, argues a form of political blindness which I should not have attributed to the right hon. Gentleman unless he had admitted it.
§ Motion and Clause, by leave, withdrawn.