HC Deb 02 July 1958 vol 590 cc1485-98

(1) Where, in accordance with the provisions of this section, a special banking account (hereinafter referred to as an "Employee's Savings Account") is opened on behalf of an individual, he shall be entitled to such relief from income tax as is provided in this section.

(2) An Employee's Savings Account shall be an account deposited with a joint-stock bank or with a trustee savings bank or such other institution as the Commissioners of Inland Revenue may on application approve, and the Commissioners shall on application approve any institution which is in their opinion capable of handling such an account, bearing in mind the conditions hereinafter provided, the interests of persons on whose behalf accounts are opened and the need to protect Her Majesty's revenue.

(3) An Employee's Savings Account shall be operated subject to the following conditions—

  1. (a) it may be opened by any employer on behalf of an employee, or, in the case 1486 of a self-employed person, on his own behalf;
  2. (b) sums of money, stocks and shares or other securities may be placed in an account by an employer on behalf of the holder of the account, or, in the case of a self-employed person, on his own behalf;
  3. (c) the total value of any moneys or shares or securities so deposited in an account shall not exceed in any year of assessment the sum of one hundred pounds;
  4. (d) interest or dividends due on any money or securities held in an account may be paid into the said account,
  5. (e) without prejudice to paragraph (g) below, no other money may be paid into an Employee Savings Account, nor any other shares or other securities deposited there;
  6. (f) any moneys or shares or other securities deposited in an account shall thereby become the sole property of the individual on whose behalf they have been deposited and this shall not in any way be affected by any subsequent change of employment;
    7. 1487
  7. (g) any individual on whose behalf an account has been opened may at any time at his own discretion sell shares or other securities held in his account, may withdraw or leave in the account the money raised by such sale, may purchase new shares or securities with funds standing to his credit in the account, or withdraw any money standing to his credit in the account;
  8. (h) any joint-stock bank or other approved institution may offer and pay interest on moneys deposited in an account; and
  9. (i) no person may have more than one Employee's Saving Account opened on his behalf.

(4) Where the total income of an individual for the year of assessment includes, or would but for this section include, any sum deposited in an Employee's Savings Account by his employer on his behalf or, in the case of a self-employed person, by himself, or any sum equal to the value of shares or other securities so deposited, such sum shall be disregarded for all the purposes of the Income Tax Acts other than the furnishing of information:

Provided that in the event of any individual withdrawing any money from his account other than dividends or interest, an amount shall be chargeable to his assessment under Schedule E income tax for the year in which the withdrawal takes place equal to

  1. (a) the original amount of the money withdrawn from the account at the time at which it was deposited in the account, or, in the case of shares or other securities which have been disposed of and the proceeds withdrawn, their original value at the time at which they were so deposited; or
  2. (b) in the event of any shares or securities being worth less than this at the time at which they were sold or exchanged, regardless of whether they were withdrawn from the account at that time or subsequently, the value realised in such sale or exchange.

(5) Where the total income of an individual for the year of assessment includes, or would but for this section include any sum paid or credited to an Employee's Savings Account in respect of interest on moneys deposited therein or of interest or dividends on shares or other securities deposited therein, those sums shall be disregarded for al: the purposes of the Income Tax Acts other than the furnishing of information if or in so far as they do not exceed fifteen pounds.—[Mr. Wade.]

Brought up, and read the First time.

Mr. Donald Wade (Huddersfield, West)

I beg to move, That the Clause be read a Second time.

During the debates on Profits Tax yesterday, which seems a rather long time ago, those who objected to the removal of the special rate of tax based their case in part on the ground that it might lead to an increase of dividends. They felt that this would be unfair because there are many people who receive no dividends. It seems to me that much of that criticism was misdirected. It may be true that only a minority of people receive dividends from industrial shares, but the fault lies in the maldistribution of the ownership of shares. The Committee should be concerned about this uneven distribution of ownership rather than the question of the distribution of profits.

If the ownership of shares were much more widely spread, much of the heat that is engendered about the distribution of profits would vanish. Our aim is to bring about a much more widespread distribution of the ownership of shares in industry. Unfortunately, industrial shares are held in the main by a small minority of the community. I believe that to be a social evil which should be put right and which Parliament can assist in putting right.

I and my hon. Friends have for some years advocated profit sharing. There is a great deal to be said for it, and I would like to see more of it, but I do not think that that is enough. We need the greater distribution of ownership as well as profit sharing. Only in that way shall we bridge the gulf between capital and labour.

One of the ways whereby the ownership of shares could be more widely spread would be by the encouragement of employee shareholdings. Unfortunately, there are obstacles and some of them are due to our present taxation system. Some large firms have found ways and means of overcoming these tax difficulties, but many smaller firms have found these obstacles insuperable and, for that reason, have abandoned schemes which they might otherwise have adopted. Therefore, we must try to take practical steps to remove the difficulties which prevent the adoption of employee shareholding schemes.

The Clause is designed to meet some of those difficulties. I would like to give one simple illustration of what we are trying to do. For example, if shares are allotted to employees on favourable terms, the employees are at once taxed on the notional benefit or profit which they are deemed to receive. If an employee acquires a share for 10s. and its value at that date on the Stock Exchange is 12s. 6d., the employee will be at once taxed to the extent of the difference, namely, 2s. 6d., assuming that he himself has provided the 10s. The following day, the value of the share might fall to 10s. or less, but he will nevertheless be taxed on that benefit which he is deemed to have received. It may be that the employing firm will provide the money to pay the tax for him, but that does not alter the fact that the tax is payable. This is a discouragement both to employees and to firms who wish to adopt employee shareholding schemes.

The essence of the proposal in the new Clause is that the principle of deferred tax liability should be applied to this type of case. I recognise that this is somewhat unusual. There is, of course, a precedent. The principle of deferred tax liability is well known. It is applied in the case of superannuation policies. It is, however, somewhat revolutionary to apply it to the case of shareholdings. But we want a revolution. That is the purpose of our endeavour, although we of course wish to see that it is a peaceful revolution; but, nevertheless, a social revolution of great importance. We believe that this would be a practical step in helping to bring about this revolution.

11.30 p.m.

We suggest that the shares or the money which is used in the purchase of shares should be recorded in a special savings account. No tax liability would arise till the shares from the proceeds of sale were withdrawn from this special savings account. Furthermore, the liability would be assessed in accordance with the income of the employee, of the person withdrawing this money, at the time of withdrawal. Therefore, if the employee leaves his shares in the account till he is unemployed or till he retires, it is probable that the amount of tax he will have to pay will be very much less; he may not have tax to pay at all.

There are several advantages in that. One sometimes hears of employees being unwilling to work overtime because of the additional tax. I do not often find that. I generally find willingness to obtain the extra earnings by overtime. However, there would be an encouragement in being able to earn, say, up to £2 a week extra without any additional tax, on condition the money were put in the special savings account and invested, and no tax would be payable till it was withdrawn. I sug- gest one further encouragement, namely, that the first £15 of income or dividends from those shares would be free of tax, in the same way as is the first £15 interest on deposits in the Post Office Savings Bank. We are in favour of removing the artificial distinction between dividends from industrial shares and money invested in the Post Office Savings Bank.

The point may be made whether some employees would benefit from this while others would not. Under our scheme we suggest that anyone might be able to benefit, even the self-employed; anyone would be entitled, if he wished, to open this special kind of account, the only condition being that there would be a limit of £100 per annum in any one year. I have no doubt it would result in some loss of revenue to the Exchequer, but I believe that this would be more than offset by the very great encouragement to saving.

I think there are three great advantages in this proposal. In the first place there would be no hindrance to mobility of labour. The argument has been put in the past that some of these employee shareholding schemes are such a hindrance, but under our scheme the employee could move from one job to another and still retain the shares or the money in this special account. He would not be under any obligation to remain in one firm. Secondly, he would not necessarily have to put all his eggs in one basket; it would not be necessary to hold shares only in the firm in which he works. More enlightened firms already have appreciated the importance of this, and in adopting employee shareholding schemes have enabled their employees to spread the risk over shares other than those in the firm in which they are working. This would be in keeping with the proposal we put forward. Thirdly, it would not be limited to a few employees. As I have pointed out, it could be spread over the whole, and every working person would have the opportunity of taking advantage of this new idea.

I believe that it is an advance on some of the earlier ideas on employee shareholding and should be adopted. It may be that the Chancellor would care to make some minor alterations in the wording of the Clause. I am prepared to accept suggestions under that heading, but I hope that he will accept the Clause in principle and accept it without delay.

Mr. Arthur Holt (Bolton, West)

History has a way of repeating itself apparently, even in respect of Liberal Party proposals on ownership and the encouraging of savings to be put into industry, because it was at about this time of night two years ago that we last had a debate on this subject. We hope tonight that we shall have a more favourable reception to our improved proposals, on account of having as Chancellor of the Exchequer a man whom we know has this cause very close to his heart, because he has been for a long time, and I believe still is, President of the Industrial Co-partnership Association.

The basic element in our proposals two years ago, as in the present proposals, is that when shares are given completely or at less than their Stock Exchange value to employees the recipients should not pay tax on them until they actually cash them. Just after the debate two years ago, the Economist, in commenting upon these proposals, regretted that the Government had not agreed to them and said in its issue of 30th June, 1956: These proposals, if they had been adopted, would have been an incentive to saving instead of spending. It is a pity that the Government did not let them go through. Since that time other people have shown increased interest in this kind of proposal.

We do not stand dogmatically by any single detail of them. We are concerned to find really satisfactory and practical ways of achieving our object. Quite recently a book called "The Challenge of Employee Shareholdings" by George Copeman was published. It has had very favourable reviews in the financial and economic Press. Many hon. Members will have seen the long review by Harold Wincott in the Investors' Chronicle a short time ago. It was an extremely favourable review which said that the book was a "must" reading for every company director and executive. In addition, the city editor of The Times said on 31st March: It is clear that any further extension of private shareholding schemes in industry depends on some concessions from the Chancellor. It may well be argued that if these are good things they should develop automatically of their own accord, but we know that there are many discriminations in our tax system. It has been found before that when people decide that something is worth while and should be encouraged it has been accepted by the House of Commons that tax concessions should be given. Undoubtedly, the wildfire advance of personal insurance in the last generation must be ascribed not only to the improved standard of living all round but to the very substantial tax concessions which have been given to pension funds of one kind and another.

All we are asking here is that if the Committee agree with our object it should examine the impact of the present taxation system on this kind of thing and give consideration to what tax obstacles should be removed or tax concessions given to enable this development to take place. My hon. Friend the Member for Huddersfield, West (Mr. Wade) has dealt with the Clause in detail and I do not wish to weary the Committee by going over that again.

One of the developments of our proposals, as distinct from those we made twelve months ago, is that this system of having a special bank account would enable everybody who is employed to join in these benefits, not only those in private industry but those in nationalised industry as well. One of the criticisms of schemes we put forward before was that they did not provide for those in nationalised industries, in local government, those who sweep the streets, or civil servants. Anyone who is employed could benefit from this scheme as laid out in the new Clause.

The objects are twofold—to encourage employee shareholding, and, where that is moving satisfactorily, to encourage shareholding in industries other than the one in which the person is employed, and also to encourage savings up to a limit of £100 a year. I do not think the Committee can be in any doubt that we need greatly to encourage savings. The White Paper, Cmnd. 398—Preliminary Estimates of National Expenditure, 1952 to 1957—shows on page 7 a considerable improvement in savings in recent years. Those figures are questioned because they are residual figures for those in the table and do not make allowance for depreciation and the like. But we cannot pretend that they are satisfactory for, as the Chancellor is only too well aware, he has to take in £500 million odd more from the taxpayer for capital development which he has to carry below the line in the Budget because there are not yet sufficient savings.

In the present Budget the Chancellor has had to allow £100 million for local authorities, £45 million for the National Coal Board, £290 million in loans to other nationalised industries and £50 million to the railways. That is just short of £500 million, which is a formidable sum if it has to be raised by private savings outside. Of course, great advantages in tax reductions could follow if ways and means could be found of raising this outside. So, presumably, the Chancellor would be sympathetic to this scheme, which would encourage extra savings. We suggest that is precisely what our proposals would do. Not only would they do that, but they would encourage companies and employees to take a wider interest in employee shareholding.

It is very difficult to get accurate figures on who hold shares at the moment. The only figures which appear to be of any value at all are those produced by the Survey of National Incomes and Savings carried out by Oxford University in 1952. These show that 1,250,000 people hold negotiable securities of any kind. Various attempts have been made by them to find out how many people actually own industrial shares, and any estimates of this cannot be anything other than very approximate. But Copeman did reckon that between 100,000 and 150,000 people only owned at least half of all the quoted company shares.

We can recognise from these figures that shares are held by a very small section of the community, and anything that we can do to spread this ownership must be generally beneficial, and, I would have thought, widely acceptable as a good objective by most people here.

11.45 p.m.

We hope that the Chancellor will like our new Clause, especially in view of the constant avowed interest of Conservative leaders in spreading property-owning democracy. This has gone on in numerous speeches, including the first speech of the previous Prime Minister in the House after the 1955 Election, and has been repeated by individual backbenchers at different times, some of whom take a genuine and deep interest in this.

We feel that if these proposals are not acceptable as they stand, at least we should know what the Government propose doing in a practical way to further this cause of a wider distribution of the ownership of industry and, at the same time, a great interest in personal savings.

Mr. Amory

I have looked carefully at the interesting suggestion made in the Clause moved by the hon. Member for Huddersfield, West (Mr. Wade). I have looked at it with a not unfriendly eye, because for many years I have interested myself in schemes of profit sharing and employee shareholding and believe that in appropriate circumstances both can be very desirable developments and sensible manifestations of good industrial relations. So I am sure that the objects of this Clause are extremely good, and I agree that it would be an excellent thing to encourage in some practical way the ownership of industry to become more widespread.

As I understand them, the proposals in this Clause envisage employers opening savings bank accounts for employees, or self-employed people opening savings accounts for themselves. Money, or stocks or shares, can be deposited in those savings accounts up to the value of £100 a year, and those deposits would be the property of the individual concerned. The Income Tax effects of this Clause would be that the appropriations that would be made by employers, if in the form of stocks or shares, would be chargeable against tax at 110 per cent. of the actual appropriation. The deposit to the beneficiary would be free of tax at the time of deposit, and if and when they were withdrawn they would become taxable.

I see one difficulty there. A savings account which has been running for a considerable time might have considerable deposits in it, and if the owner decided to withdraw them all at once it might bring him into a considerably higher bracket of taxation, and it could even put him, for one year, into the Surtax category.

I gather it is also suggested that the interest on the savings bank accounts would be free of tax, up to £15 a year. That scheme seems to go considerably wider than the encouragement of co-ownership. It sets out to encourage general investment, and one has to ask whether it is a legitimate use of Income Tax relief to do that. The Royal Commission, in Chapter 3 of its Final Report, came to the general view that Income Tax relief to encourage savings was inequitable, and that however desirable the encouragement of savings might be, it should be outside the sphere of the Income Tax system. The one exception the Royal Commission made was provision for old age.

That was the view of the Royal Commission. I am not saying that I accept it in its entirety, but I doubt whether schemes of profit sharing or employee shareholding, excellent as they are, can in general effeotively be encouraged with advantage by fiscal measures or tax concessions.

Mr. Wade

I hope the right hon. Member will appreciate that it is not merely a case of encouraging it but of removing the actual obstacles which exist at present.

Mr. Amory

That is one form of encouragement, anyhow. Already, disbursements made are a charge against profits. But I have always felt that schemes of profit sharing and employee shareholding are not so much a method of ensuring good industrial relations as a manifestation of their existence. They depend for their success not so much on practical, material and fiscal incentives as on there being a spirit of true partnership behind them.

In general, it seems to me that the principle on which we work—and I think it is a sound one—is that Income Tax should fall impartially on all income from all sources, regardless whether that income is spent or saved. The proposal made in the Clause conflicts with that principle. It goes wider than encouraging employee shareholding, because the relief applies to stocks and shares other than the stocks and shares of the employing company. I can only guess the cost, but it might amount to a considerable sum, and though I will always promise to consider any constructive scheme—and this is a constructive scheme—for a good object like this. I am forced to the conclusion that the proposal would prove not only a rather complicated way but also a very expensive way of encouraging personal savings, so it is with some regret that I do not feel able to recommend the Committee to accept the Clause.

Mr. Douglas Jay (Battersea, North)

I wonder whether the Chancellor needs to be quite so negative as he seemed to be in his remarks. When the Liberal Party advocates a revolution we ought to examine it with great care, even if it is repeating what it said two years ago. The aim of this Liberal revolution is thoroughly laudable. It is the spread of ownership of shares over a higher proportion of the individuals of the community. It is all too true, as the two speakers from the Liberal Party have said, that at present only a very small minority of the population holds industrial shares of any kind. I had always understood the figure was more like one million or 1¼ million. It is certainly a small proportion of the population. It is always much easied to point out how small this proportion is than to produce a constructive scheme for spreading the ownership of shares more widely. That is why the party opposite is always talking about a property-owning democracy but never manages to do anything practical about it.

The suggestion from the Liberal Party, if I understand this proposed revolution aright, is two-fold. First, there is to be tax relief on the capital amount of the deposit when first placed to the credit of the employee in so far as it now bears tax, and the first £15 of the interest or dividend on the money in this account is later to be made free of tax.

I see great difficulty about the second proposal. If we are going to say that the first £15 interest on this particular type of saving is to be free of Income Tax, I do not know how you can justify not applying that to, say, the interest on co-operative shares and deposits, building societies, personal bank deposits or the interest on small amounts of securities held by some elderly or retired person.

Mr. Holt

The right hon. Gentleman seems to be under the same misapprehension as the Chancellor of the Exchequer. We have two quite large methods of saving at the moment which are tax-free—Savings Certificates and the famous Premium Bonds.

Mr. Jay

One might also add the first £15 in the Post Office. These breaches in the principle, so to speak, have already been made. But my difficulty is to see how one can include this particular form of saving and not include certain other things. I do not feel entirely convinced that one can overcome this.

I was not so sure that the Chancellor gave a sound reason for rejecting the other suggestion, giving tax relief on that capital. The Chancellor expounded the normal Inland Revenue doctrine that all income is income and ought to be equally taxable. I would have thought the capital sum paid into a savings account by an employer to provide his employees with shares or securities was not really income in the normal meaning of the word. I would haw, thought there was room for argument here, and even if the Chancellor feels the same difficulty as I do on the first £15, it might be worth looking again at the other part of the proposal.

Mr. Amory

The right hon. Gentleman will agree that when it was paid it was a charge against the profits of the employer concerned.

Mr. Jay

Yes, but the fact that it is a charge against the profits of the employer, which no doubt gives him the right to deduct it from this profits for Income Tax, does not establish that it is necessarily the income of the employee.

Mr. Cronin

I agree with my right hon. Friend the Member for Battersea, North (Mr. Jay) that this new Clause does raise the interesting suggestion that there should be some tax concession for workers savings. Apart from that, this Clause seems to produce no other matter of interest except that the Liberal Party's new Clauses vary inversely to the strength of the Liberal Party.

It does seem to me that one of the great weaknesses of this scheme is that workers at present have the utmost difficulty in maintaining their standard of living at all as a result of the steady decrease in the value of the £ and the Government's measures to prevent wage claims materialising. So I think that the Clause is rather optimistic on those grounds alone. After all, small savings are held at a rather unsatisfactory level, largely because of the Government's monetary policy, and a somewhat sinister matter is the Chancellor's avowal of his liking of profit-sharing and co-partnership schemes.

12 midnight.

The right hon. Gentleman must have realised from his personal experience that these schemes have so far been largely unsuccessful.

Mr. Wade

The evidence is rather to the contrary. I should like to tell the hon. Member that I have made some investigations and it is surprising how small is the percentage of the shares which is sold.

Mr. Cronin

That is certainly different from the information I have received. These industrial shares are realisable only for the lowest values at the time when the worker most needs money, at a time when there is a recession or a slump. When the worker finds that his job is threatened, and when he is in need of help, then he will find that his shares have their lowest value. The Chancellor may talk of co-partnership schemes as helping to foster good labour relations, but that is an argument which will not apply in times of recession when the worker discovers that his holdings are of much less value than when he obtained them.

The big slump of 1931 was largely triggered off because the holding of equity shares had been popularised and had caused instability. This Clause can only be said to be of value to stockbrokers and the holders of equity shares. Apart from that, there is no merit in it.

Question put and negatived.