POST-WAR CREDITS

HC Deb 31 July 1958 vol 592 cc1731-45

10.30 p.m.

Viscount Hinchingbrooke (Dorset, South)

Since the war, Governments of this country have found considerable difficulty in living up to the understanding which was arrived at during the war that after the war post-war credits would be redeemed. Personally, I have had some difficulty since the General Election of 1955 in living up to a pledge which I gave to my constituents at that time, that I would do my utmost to plead in Parliament that those credits should be repaid. It is only now, some years afterwards, with Parliamentary proceedings what they are, that I have been able to arrive at this point.

To begin with, I think the House should consider the statement made by a Conservative Chancellor of the Exchequer on 7th April, 1941, when he presented the Budget of that year. What he said was this: I am proposing, therefore, that the extra tax which any individual will pay by reason of the reduction in the personal allowances and earned income allowance will be offset after the war by a credit which will then be given in his favour in the Post Office Savings Bank. In other words, the individual citizen will have to pay the tax in full, but that part of the extra tax to which I have referred, while complying with our vital war-time necessities will constitute some provision for post-war difficulties and will, I hope, form an additional fund of post-war savings for himself and his dependants. A little later he said: It is most necessary for me to emphasise . . that the whole tax must be paid at the proper time, and that the taxpayer cannot claim or use his credit while the war continues."—[OFFICIAL REPORT, 7th April, 1941; Vol. 370, c. 1329–30.] The implications of that speech and the Act itself, which I shall quote in a minute or two, were quite clearly that when the war ended those credits would be redeemed and redeemed in full.

The scheme of repayment which was devised by Section 7 of the Finance Act, 1946, was that these credits would be repaid to a man on attaining the age of 65 and to a woman on attaining the age of 60. By the Finance Act, 1954, provision was made in cases of death and bankruptcy to repay to the person having the title to the credit at that time when, but for those eventualities, the credit would have been repaid. Since then there has been no change whatever in the arrangements which have been made.

Various suggestions have been put up from time to time for reducing the age at which repayments are made or, for example, for issuing the post-war credits documents stamped with the age of maturity and then made negotiable for sale to the banks, or alternatively, for repayments in cases of certain disabilities or for certain persons at various income levels. Again, proposals have been made for acceptance of post-war credits in lieu of death duties. All of these have been rejected by all successive Chancellors since the war.

I think it may interest the House if I say a word or two about the figures which prevail at present, and I would invite my hon. and learned Friend who is to reply to say whether these are or are not correct. About £765 million of post-war credits were outstanding at the end of the war I have taken that from a recent Parliamentary Answer, so I hope that that is the correct figure. In the financial year 1946–47 a sum of £58 million was released; in 1947–48 a sum of £59 was released; and then from the years 1948 to 1954 about £17 million a year was released. Why those earlier post-war years achieved such a high rate of release I do not know, but those are the facts. In 1954 the sum repaid jumped a little to £23 million, but in 1955 it was back again to £17½ million, and in 1956, 1957 and 1958 £17¼ million was, or will be, repaid.

In reply to a Question on 5th May this year, the Financial Secretary told Parliament that £446 million was now outstanding. At £17 million or so per annum that will take twenty-six years and three months, if my long division is right, before the total amount outstanding is repaid.

Mr. Douglas Houghton (Sowerby)

Surely the rate of repayment is bound to increase in the coming years because of the larger number of people who hold these credits who will move towards the ages at which they are repaid. It will not be a constant figure of £17 million or so because, after all, no new credits have been granted since the later stages of the war, and the holders are all getting older. I think that many more people will come into repayment in a few years' time owing to the age distribution of the existing holders.

Since the noble Lord has been so kind in giving way, may I also remark that the higher rate of repayment in the early years was due to the dammed up claims awaiting a decision for repayment? The higher figure in 1954–55 was also due to the retrospective effect of the repayment of credits to those who had died or who had gone bankrupt at the ages at which they would have been entitled to repayment if other circumstances had prevailed.

Viscount Hinchingbrooke

I have listened to the hon. Member for Sowerby (Mr. Houghton) for many years past and have always thought that he had many titles to become Chancellor one day, but at the moment we are dealing with one source of knowledge, and that comes from my hon. and learned Friend who, I hope, will correct the figures if I have wrongly given them.

On 18th July, 1957, my hon. Friend the Member for Wycombe (Mr. John Hall), who I am glad to see in his place, asked what estimate had been made of the value of a post-war credit of £50 in 1957 if inflation continued at the present rate. My right hon. Friend the Member for Flint, West (Mr. Birch), the then Economic Secretary to the Treasury, replied, "None." That, I suppose, meant that no estimate had been made, not that there was no value to the post-war credit.

Mr. John Hall (Wycombe)

I think that my right hon. Friend was probably right on both counts.

Viscount Hinchingbrooke

I must confess that it would seem so, because the irony of the situation is that the longer this process continues and the longer inflation continues, the less likelihood there is that those worthy people who toiled successfully during the war in the expectation that some of their work would be rewarded, as Sir Kingsley Wood pointed out in his Budget speech, really thought that they would get something in the end, but the longer this process continues the more likely it is that they will get nothing at all.

All the same, I think that my hon. Friend the Member for Wycombe got his calculation a little bit wrong, unless he had taken into account the actuarial calculation which the hon. Member for Sowerby has just made, because it seemed to me, on the arithmetical basis, that the miserable process of repaying post-war credits would come to an end not in 1977 but in 1984, that well-known year of torture and concentration camps.

It has been the accepted doctrine of the Treasury accountants, year in and year out since this process began, that it was wildly dangerous and inflationary to release more than £17 million a year. Why £17 million a year should be the correct amount I cannot imagine. Seventeen million pounds of flesh year by year, but not one extra drop of Christian charity to the people who originally subscribed this money and were promised that it would be returned. Meanwhile, the State annually spends over £4,000 million a year of the taxpayers' money, the spending of which is inflationary or not according to the whims of the recipient. Why in heaven's name we should assume that if £446 million of post-war credits were disbursed to their holders it would be money spent in a more inflationary way than a sum ten times that amount annually, I simply cannot imagine.

Indeed, there is evidence of inflationary spending on the part of those who are in the early or in the late age groups. The middle generations are notorious for their efforts to save. If the hon. Member for Sowerby is right in his calculations, and I dare say he is, about the cumulative total today of all those with post-war credits who will be repaid eventually in a greater amount annually than now, then those are the people who are, broadly speaking, in the saving classes. Few people below 35 years of age today have any post-war credits at all. Therefore, the whole of that £446 million is concentrated in the age groups which are disposed to save.

It may well be the case that on humanitarian grounds it is a good plan to distribute £17 million a year to those of 65 and 60 years, but on economic and disinflationary grounds it should be paid to those who are 35 years of age and over. Yet nothing is done year by year. There is a kind of lethargy of thought in the Treasury on this whole subject which is most disquieting.

My proposal is that this sum of £446 million of post-war credits should be discharged in toto forthwith. I should like to read from Section 7 (1) of the Finance Act, 1941, the operative words on this point that the amount of post-war credit … so ascertained and recorded shall be notified to him"— that is, the taxpayer— as soon as possible and shall be credited to him on such date as may be fixed by the Treasury, being a date, so soon as may be after the termination of hostilities in the present war. Therefore, the words that Sir Kingsley Wood, a Conservative Chancellor of the Exchequer used, which gave people the understanding that when the war was over these credits would be repaid, are embellished in the Act itself and the people who drafted the Act, even the civil servants themselves, said in the Act that the credits would be repaid so soon as may be after the termination of hostilities in the present war. But the point which I wish to raise in this connection is simply that the Treasury is empowered to determine the date on which the credit should be repaid, and that date, I believe, is now.

I know perfectly well by what means these credits could be repaid, but for technical reasons it is impossible to refer to them in this debate. I can say only that it should be a once and for all capital operation. No new precedent would be created by doing this. The £17 million which is repaid annually now is provided for below the line in the Financial Statement, thus acknowledging its capital nature and the borrowing which is involved.

As for the inflationary aspect, if every penny of post-war credit money were spent today, which I am sure would not be the case for reasons which I have adduced, it would be counter-balanced by the extraction from the public of an equivalent sum. The burden on the economy of discharging these post-war credits in toto now would be negligible and would be far less than the political burden of keeping pledges perpetually dishonoured.

My right hon. Friend the Chancellor of the Exchequer is wisely letting up on the economic front. There is some sign of recession in the United States and some sign of recession in Europe and in this country. So far my right hon. Friend has wisely favoured the private sector in letting up on the anti-inflationary pressures which the Government have felt it necessary to use in the last year.

There are two ways of taking up the so-called slack of unemployment. One way is by compulsive State expenditure from the centre on vast programmes in the nationalised industries, in State activity and so on. The other way is by a reduction of taxation—to which I very much hope the Chancellor will resort next year—and by repaying the post-war credits now.

In many ways, my hon. and learned Friend the Financial Secretary has the economic and physical characteristics of our great Conservative Chancellor, Sir Kingsley Wood. Let him assume the mantle. Let him wear the crown and, by his answer to this debate, let him restore to those who worked hard during the war, on the understanding that they would be rewarded for it after the war, the justice which they expect.

10.48 p.m.

Mr. Douglas Houghton (Sowerby)

Those of us who have listened to the many speeches of the noble Lord the Member for Dorset, South (Viscount Hinchingbrooke) will recognise that this is unfamiliar territory for him. I make no complaint about that, but I think that he was wrong in suggesting that this is the first opportunity which the vagaries, uncertainties and difficulties of Parliamentary procedure have given him to raise the matter in the House. There have been earlier opportunities, but perhaps he has missed them.

This debate would be more suitable within the framework of the Budget debate, in the discussions on the Finance Bill, or on other economic problems. I am not sure how far I am free to follow the noble Lord's arguments in discussing possible ways of dealing with accumulations of post-war credits, all of which, I believe, involve legislation.

Perhaps one can deal with certain suggestions which have been thrown out for regulating this long-standing and still very substantial debt to the holders of post-war credits.

Originally the idea of refunding to taxpayers after the war some part of the high level of war-time taxation in the form of post-war credits was put forward by John Maynard Keynes, if I remember rightly, in a little book entitled "How to Pay for the War". It was adopted by Sir Kingsley Wood who by then had been converted to some form of Keynesian economy, and the idea of post-war credits was evolved. It is very doubtful economics, if one is really examining the fundamentals of the matter, to regard as some form of saving for after the war money which has been collected from taxpayers during the war and blown to smithereens in smoke and guns and smashed to smithereens in planes and sunk in ships, and call it any sort of real wealth held in trust for later refunding to those who gave it up as part of the war effort.

In examining that as an economic proposition it is very difficult indeed to make sense of it. Nevertheless, there was a great deal in the idea. Many people who could afford to save during the war would have accumulated savings in their hands after the war which they then could spend on consumer goods or in other directions—savings which they had made as part of the war effort but probably no sounder economically than post-war credits, having regard to the destination of voluntary savings being indistinguishable from the destination of compulsory savings. This can become a very involved economic argument.

They were not savings for later productivity. They were not an investment for subsequent expansion of the national wealth. This was expenditure for national survival in a manner which left us poorer and not richer after the war.

Keynes had in mind that many people would have savings voluntarily made during the war available for spending after the war. Others would not be in a similar favourable position, yet would have to contribute out of their war-time earnings a very substantial additional amount in taxation, and he conceived the idea that these people should have a post-war credit given to them which would differ from voluntary savings only in regard to the date of payment and the control over the release of those savings which the Government of the day would have.

There is a very substantial distinction between voluntary and compulsory savings. Voluntary savings one can get when one wants them, whether they are worth more or less, but compulsory savings can be released only by decision of the Government.

Keynes also had in mind that, following the experience of the First World War, there would most likely be a slump and that the release of post-war credits during a post-war slump would be one of the remedies which the Government of the day should have against a decline in money power. It would be a stimulus to spending over a wide front if post-war credits could be released when there were signs of a decline in the level of consumption and a rise of unemployment.

Happily that time has not come since the war. I do not think for a moment that even the present level of unemployment—which is the highest since the war—is at anything like the level which Keynes believed we might suffer and which would be the occasion for the release of post-war credits on a grand scale; but that is only my opinion. I do not think that less than half a million unemployed and a total population in employment of over 20 million would have been regarded by Keynes as the sort of slump that he feared might occur, and during which the release of post-war credits would be a stimulus to purchasing power.

Viscount Hinchingbrooke

He is dead now.

Mr. Houghton

Yes, he is dead now, but much that he said about the economic situation is valid today, and he has many disciples in the economic world.

But the practical question is how to release these credits and honour the pledge. The pledge was given; there is no doubt about that. Why the noble Lord should think that there is some special virtue attached to a pledge given by a Conservative Chancellor as distinct from any other Chancellor I am not very clear; anyhow, the combination of "pledge" and "Conservative" seems to impress itself on the mind of the noble Lord in such a way as to make its breach a dastardly thing.

That pledge has in part been fulfilled but only in part. In the circumstances existing in 1946 my right hon. Friend the Member for Bishop Auckland (Mr. Dalton) chose a suitable way of beginning the release of post-war credits. It had the virtue of releasing them as a kind of retirement gratuity, when a man reached retirement age at 65 and a woman reached it at 60.

The great tragedy about these credits is that they have lost much of their value, and that when they are ultimately paid they will not represent the value which was given up by those who paid taxes during the war and on whose behalf the Government have been holding them. I suppose it can be argued that the Government have a special responsibility to preserve the value of money which they have held in trust all this time, and which they have denied the compulsory saver the opportunity of realising for his own purpose. The voluntary saver has at any time been free to withdraw his money and spend it on consumer goods or in any other way he chose. Fearing, perhaps, that the value of money would fall, he could spend while the spending was good, if he thought that that was the best thing to do. But the post-war creditor has had no such opportunity, and in that respect is at a great disadvantage.

Mr. Leslie Hale (Oldham, West)

He cannot even use them to pay his taxes.

Mr. Houghton

No; he cannot use them for anything at all. They are not negotiable. He cannot sell them. He cannot even give them away. Nobody can give away his post-war credits. The possession of a post-war credit certificate is no title to repayment, any more than the non-possession of a post-war credit certificate is a disqualification from getting payment. The credit is in the name of the holder, and it is his alone. It cannot be passed on while he is alive.

In those circumstances, the opportunities for full withdrawal would obviously be strictly limited to reaching a certain age. Various ideas have been put forward as to how the repayments might be accelerated. In my own personal opinion, there is no particular virtue in reducing the ages at which repayment should be made. If there is anything in repayment at any particular age at all, perhaps the retirement age—

Mr. Speaker

Any such suggestion would involve legislation.

Mr. Houghton

I was sure, Mr. Speaker, I should get into trouble about this. It is most difficult to pursue this theme without going beyond the bounds of order. I think the prudent course for me is not to continue to discuss possible ways of releasing these post-war credits, because I think all of them involve legislation.

Mr. Hale

There is one point about this which seems to me important. Is not this exactly the scheme Horatio Bottomley proposed in this House and got seven years for, and at the end was able to say "I have paid, but …"?

Mr. Houghton

I leave my hon. Friend to discover for himself whether a discussion of Horatio Bottomley will be any more in order in this debate than my attempt to pursue possible ways of releasing these credits. What I should like to do as a strictly practical question, and unrelated to the speed at or manner in which the post-war credits may be released, is to raise an administrative matter, which was raised in Questions to the Chancellor of the Exchequer in this House, and that is of people who discover for the first time when they claim, as they are entitled to claim, repayment of their post-war credits that an arrear of tax for that year has stood against them from the original year of the post-war credit itself. I have had cases in my own constituency where people have reached the age at which they could claim their post-war credits and have been told that the full amount is not repayable, because there is still an unpaid arrear of tax for that year. To ask people to go back 14 years—and in some cases in future it will be longer than 14 years—to decide for themselves whether they owe tax is, I think, a tall order. In any case, it comes as a shock to someone expecting to get the money to find that it is reduced by a set-off of an arrear of tax for the same year as that to which the post-war credit relates.

I wonder whether something cannot be done to let all holders of post-war credits know now, or in the near future, whether there is any tax arrear standing against the credit they think they have, so that if there are any questions relating to these old tax arrears they can be gone into before it is too late, and certainly while the post-war creditor is still alive. It is most regrettable for his widow, as in some cases has happened, to go into the question of tax arrears for her late husband. In some cases, as the House knows, the post-war credit is repayable, not on the death of the holder but on the date upon which he would have reached retirement age had he lived, which in some cases leaves the widow with the problem of settling the post-war credit after her husband's death.

I know that there are difficult administrative problems in this connection. No one should know that better than I, because I have 40,000 members of the Inland Revenue Staff Federation to remind me of them, but, whatever the administrative difficulties, we have a public duty here to see that this post-war credit business is put on a proper footing, and it is not on a proper footing now.

I am not going to say that Governments have been indifferent to post-war credits in this connection at all, but since there has been no urgency behind this work until the taxpayers are coming to retirement age, there has been a natural tendency for some current pressing duties to take precedence over the straightening out of this big accumulation of post-war credits. In many cases information from tax offices all over the country has to be brought together before a final balance can be struck, if that has to be done, between arrears and the post-war credits. I think it imperative, since eventual repayment of these credits may be further postponed—that is a possibility which we must not overlook—that so far as possible the administrative work behind the still substantial number of credits held by the Government should be put in proper shape, so that people know where they stand and can deal with any suggestion that there are arrears outstanding against them before it is too late. Then in due time when the repayments are made, there will be no dispute which will have to be settled between the holders or their widows or representatives, and the Inland Revenue Department.

If I may be permitted one sweeping statement, I agree with the noble Lord that when this job is tackled, it will be far better to deal with it completely as a capital transaction than to nibble away at repayments on the present basis. I once expressed the belief, and I still hold it, that if the whole lot of outstanding credits were converted into voluntary savings at the disposal of the holders, a large proportion of them would be retained as genuine savings, mainly for the reasons which the noble Lord has given.

11.8 p.m.

The Financial Secretary to the Treasury (Mr. J. E. S. Simon)

My noble Friend the Member for Dorset, South (Viscount Hinchingbrooke) confessed that his speech this evening was in fulfilment of an Election pledge in—

Mr. Speaker

Order. I am reminded that the hon. Gentleman has spoken already on the Question before the House, so that he ought to ask the leave of the House to speak again.

Mr. Simon

I am entirely in the hands of the House. I should like to reply to my hon. Friend if the House will permit me.

I was saying that my hon. Friend had confessed that his speech was in fulfilment of an Election address in 1955. A speech made in such circumstances is probably not one which should be examined too closely for consistency, because, of course, my hon. Friend has been one of the most stern, most unbending, most high-minded and rigid of disinflationists. His proposal this evening is no less than to inject £443 million of Government expenditure—as the figure stands today—into the economy. It is that extremity, with the combination of an Election pledge and the rules of order, which precludes my hon. Friend from arguing for anything less than total disbursement of the post-war credits.

Before I come to examine the implications of that, I should like to refer to the point made by the hon. Member for Sowerby (Mr. Houghton) about the unfortunate situation which I agree does exist where, on occasions, the amount shown on the face of the post-war credit certificate is not wholly repayable. I think it fair to say that that happens in a very small proportion of cases, but it does undoubtedly exist and I have had a certain number drawn to my attention lately. They are mainly cases where a claimant is a beneficiary of a deceased person who owed arrears of tax in the year for which the certificate was issued.

In the original years, 1941–42 to 1944–45 certificates were very often issued before the tax was paid and showed a credit that would be issued if all the tax for the relevant year was paid. It was Government policy at that time to get the certificates into the hands of the taxpayers as early as possible. There is, in fact, a note on the certificates which makes it clear that the right to the credits is dependent on the payment of the tax and in 1945–46 the certificate normally shows the net amount due after setting off any arrears. Since 1950 a check has been made in every case where the Inland Revenue learnt of a taxpayer's death and was asked to prepare new certificates. I hope that will reassure the hon. Member, who very fairly said that the Government and the Inland Revenue are not indifferent to this problem.

It arose because in the earlier years, before 1950, it was not possible to make that check. Those were the years when tax offices were working under very heavy pressure—as the hon. Member knows, better than any of us—as a result of the burdens which were thrown on a depleted staff in the earlier years of setting up the P.A.Y.E. scheme. They were not able to take up the work of collating the tax arrears with post-war credit records. Now such collation takes place, but it would throw a very heavy burden on the tax offices, and require a substantial recruitment of staff which we would not be justified in undertaking at the moment, to re-collate the earlier certificates which have not been examined since 1950 since, as I say, it is only in a very small minority of cases where there is a discrepancy between the figure on the face of the certificate and the actual amount repayable.

I return to the main argument of my noble Friend. The figures he gave were perfectly accurate. About 300,000 claimants are repaid annually at a cost, as he said, of £17 million and the amount still outstanding is about £443 million. If that were disbursed today, as he put it, "in toto forthwith", and if it were desired to do that without affecting the general economic position—in other words, without increasing overall purchasing power—that could only be done either by reducing some other expenditure by the same amount, or by increasing taxation by the same amount.

Viscount Hinchingbrooke

indicated dissent.

Mr. Simon

My noble Friend shakes his head and I know he would not be prepared to countenance that. On the contrary, he looked forward to a massive reduction of taxation next year in addition to this £440 million odd he was proposing should be disbursed in toto forthwith.

Viscount Hinchingbrooke

The trouble is that I should be out of order if I explained why I shook my head.

Mr. Simon

It must be a great comfort to my noble Friend at any rate to shake his head and remain in order. The fact remains that it is true that if one wants to perform this operation without increasing total purchasing power—in other words, without taking an inflationary step—it can be done only at the cost of reducing expenditure or increasing taxation. My noble Friend recently supported my right hon. Friend the Chancellor of the Exchequer in his assessment of the economic situation which faces the country today. The Chancellor in his Budget assessment, reckoned that the proper increase in the purchasing power of the country's economy which he could contemplate in the way of remission of taxation was about £50 million.

My noble Friend supported that; but that cannot be right if, at the same time, we are asked to disburse a further £443 million. An increase in the payment of post-war credits, it is argued, may be undertaken deliberately as a means of increasing purchasing power in a severely deflationary situation. That was, in fact, one of the two concepts which lay behind the original post-war credits. There was also the rather narrower, less academic concept of sweetening the inevitable increase in war-time taxation. My noble Friend has made out his case that a pledge has been given which has not been redeemed; but there has never been a situation since the end of the war when the economy could have afforded this concession supervening on all the other inflationary pressures. There has been no situation since the war so deflationary that the Government could deem it right to increase purchasing power by this means.

In his Budget, and during the passage of the Finance Bill, the Chancellor made it clear that there is no case for such a large injection of artificial purchasing power into the economy and, therefore, I must tell my noble Friend that we cannot accept that this measure should at any rate be taken in toto and forthwith.