HC Deb 15 June 1959 vol 607 cc43-69

(1) Where the total income of an individual includes or would, but for this section, include any sum under Part III of the Income Tax Act, 1952, in respect of a house or tenement of which the said individual is both owner and occupier, the sum aforesaid shall, subject to the provisions of this section, be disregarded for all the purposes of the Income Tax Acts other than the furnishing of information.

(2) No individual shall be exempted from assessment under Schedule A by virtue of this section in respect of more than one house or tenement in any year of assessment.

(3) For the purposes of this section, a house owned by a married woman living with her husband and occupied by them shall be deemed to be owned and occupied by the husband.—[Mr. Wade.]

Brought up, and read the First time.

3.53 p.m.

Mr. Donald Wade (Huddersfield, West)

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

This Clause relates to Income Tax, Schedule A, commonly known as property tax. I think that the Chancellor of the Exchequer will probably agree that it is one of the most unpopular forms of Income Tax because it is calculated on theoretical and not on actual income. The object of this new Clause is to abolish Schedule A tax in so far as it affects owner-occupiers.

In the most recent Liberal report on the subject of the distribution of ownership, the complete abolition of Schedule A tax is advocated. I am not in disagreement with that. If the Chancellor should decide to abolish Schedule A tax altogether, I would support him in doing so, but we had evidence in some of the earlier debates, mostly in the debate on Entertainments Duty, that the Chancellor would appear to move by stages towards the repeal of a duty or the repeal of a tax. I think that in this case, if a step is to be taken towards abolition, it should be in the direction which is most helpful, and that is the intention of this Clause.

Before I deal with some of the details of the Clause, I think it only right that I should say a few words about the broader principle, namely, the question whether this kind of tax is justified. I am, of course, aware of the observations in the Royal Commission's Report on the Taxation of Profits and Income. In the final Report, page 249, paragraph 826, the objections to Schedule A tax on owner-occupiers are set out. It is a short paragraph which reads as follows: The witnesses who objected to the charging of tax on the owner-occupiers of dwelling houses did so on the grounds—

  1. (1) that notional income is not a fit subject for taxation; and
  2. (2) that it is inequitable to tax the beneficial enjoyment of a right of occupation of real property when the income which could, by parity of reasoning, be attributed to the owners of other forms of property (e.g., motor cars) goes untaxed."
I think that I can fairly summarise the answer to those objections as follows, namely, the Commission agreed that the second point was logical. The members of the Commission made a distinction between a man's house and his chattels. I think that this answer should be examined very critically. The comparison is made between a dwelling-house and a car. It would seem to me that a more appropriate comparison would be between a dwelling-house, in the ordinary sense of the term, and a caravan. The Report states that a tax or charge is rightfully imposed upon the value of residential occupation. As I understand it, if I decide to buy and live in a caravan, however expensive it may be, I pay no Schedule A tax. In other words, if I decide to have my home on wheels, I pay no Schedule A tax. It is even more curious, if my information is correct, that if I decide to have my home on wheels and then take the wheels off, I still pay no Schedule A tax.

I am not putting this forward as a means of avoidance of payment of Schedule A tax. I am not setting myself up as an adviser on tax evasion, but I think it is true there is no clear principle involved and the whole idea of imposing a tax on some notional benefit is wearing rather thin. There are other objections to this tax in addition to the widespread belief that it is anomalous.

It must be admitted that a great deal of administrative work is involved in the collection of the tax and in the provision and examination of maintenance claims. I know that the Chancellor may say that the amount collected is considerably more than the cost of collection. He may say that there will be a loss of revenue. It would be out of order to discuss other sources of revenue but one must keep in mind that considerable profit can still be made from land values. Putting that on one side for the moment, the fact that the gain by the Treasury in collecting this tax may be more than the cost of collecting it does not alter the position that there is a great deal of administrative work for the Inland Revenue staff and for the payers of the tax.

Unfortunately, many taxpayers are not aware of their rights. I myself employ an accountant. I find it very difficult to be quite sure what I can claim and what I cannot. I leave it to an accountant. I think that the accountancy profession finds this a very troublesome subject to deal with. There are, however, many who do not go to an accountant. They do not know exactly what are their rights, and they fail to get full advantage of their entitlement to maintenance claims. The result is that the tax is unfair in its incidence.

4.0 p.m.

Again—and this is a consideration which is not so often raised—the owner of property who is subject to this tax enjoys no advantage of depreciation allowance. I think that, in theory at any rate, it would be possible to introduce a depreciation allowance, and I have considered that from time to time, but I think it would add to the complexities, and my desire is to simplify rather than to make our tax system more complex. Indeed, I think that another ground for the abolition of Schedule A would be the simplification of our tax system.

There is another argument which is sometimes put forward, and it is this. Since the war tenants have had their rents subsidised in many ways, either directly by the Government and local authorities, or indirectly as a consequence of the Rent (Restrictions) Act, and it is sometimes said that it is time that owner-occupiers were helped a little bit to offset the advantage given to tenants. Personally, I would not press that argument. I do not think we should be persuaded by the "me, too" line of argument. I prefer to base my case on the desirability of encouraging and facilitating home ownership and the need of simplification of our tax system.

I think we must look forward to an increase in home ownership, and it should be welcomed. It is sometimes said that that might create difficulties for the mobility of labour, but I think that those difficulties can be met. If time permitted, I should have liked to deal with the problem of mobility of labour, but I think that that might be out of order.

It may be asked, why pick on owner-occupiers and not all owners of property? The answer is this. The owners who let their property will pay tax in any event upon the rents which they receive, and if they pay property tax that reduces the amount which they pay on the net rents.

I have considered other, alternative proposals. For example, there is the suggestion that there should be an increase in the statutory allowance. That has some merits, but it raises complications. For example, if I were a landlord who had little regard for the welfare of my tenants or the condition of my property, and I spent the very minimum on keeping my property in a decent state, I should welcome an increase in the statutory allowance because I should get automatic reduction in the amount of Income Tax which I should have to pay on my rents without having to spend anything more on repairs. Therefore, it is only fair and reasonable that we should try to help the owner-occupiers who are called upon to pay this tax on, if not a fictitious, at any rate a theoretical benefit. If relief is to be limited, if we are not to abolish the tax altogether, we should try to help the owner-occupier.

Let me give, for example, the case of young married couples who are fortunate enough to find and buy a new house. During the first few years they may not have much expenditure on repairs and maintenance because the house is new, and therefore they have no maintenance claims; but many of them cannot afford at first to furnish the whole house completely, and they have a great deal of expenditure during those first few years, but not of a kind which can be set off against this notional income. Therefore, it is only reasonable that we should try to do something for the owner-occupiers.

I turn to the details of the new Clause. There are really ony three main points. It is, as I hope the Chancellor will agree, a quite modest proposal compared with total abolition. It applies only to owner-occupiers. Secondly, it applies only to one house. If I were wealthy enough to own and live in several houses, I should be entitled to claim for relief in respect of only one house. Thirdly, it applies to husband and wife; to quote the new Clause: … a house owned by a married woman living with her husband and occupied by them shall be deemed to be owned and occupied by the husband. It has been suggested to me that there might be some modification of that proposal; firstly, that it should apply where the house is occupied for residential purposes only, and secondly, that this provision relating to the husband and wife should be extended to the parent or parents of the owner or to the child or children of the owner. Those suggestions are reasonable, and I would be quite willing to accept them.

Returning again to that Liberal report which I mentioned at the outset of my remarks, this suggestion dealing with Schedule A is only one of many items of policy the purpose of which is to change the whole pattern of ownership. That is the aim, and this is only one item. If the Chancellor agrees with our policy of extending ownership—I know he turned down our proposals on other aspects of it last year—if he believes in what hon. and right hon. Members opposite call a property-owning democracy, it seems to me that here is an opportunity for him to help it.

I have made the path as easy as possible by asking for this moderate benefit of partial repeal. I see no great administrative difficulties. I think this is a case of "Where there's a will there's a way" and there should be no great difficulty in finding the way. I trust, therefore, that the Chancellor will announce his decision to abolish this tax altogether, or, failing that, that he will accept either in every detail or in principle this new Clause.

Mr. Graham Page (Crosby)

Either my hon. and learned Friend or the Chancellor will, I trust, in a few moments' time, stand at the Box to answer the proposal of the hon. Gentleman the Member for Huddersfield, West (Mr. Wade), and he will be standing there in a suit, his usual elegant suit—at least, I trust he will—and he would think it utterly ridiculous if anybody suggested that he ought not to have invested his money in that suit but that he ought to have invested it in something which earned income, and that because he has invested it in that suit he is to be charged tax on the net annual value of the suit; not just a once-for-all tax such as Purchase Tax, which the hon. Gentleman the Member for Huddersfield, West mentioned, but an annual tax upon that anachronism invented by Adam Smith as long ago as 1776, the net annual value.

How can a suit have net annual value? Well, hon. Members have only to recollect Moss Bros. Perhaps my right hon. Friend hires his suit from Moss Bros. If he does, it only lends point to my argument, that there is a similarity between two essentials of life, clothing and housing, between a suit which one wears and a house in which one lives. Yet they are dissimilar in their tax propensities. This shows how terribly illogical is the argument that because a house is an essential of life that, therefore, if one is not an owner-occupier, one must rent one; that, therefore, if one is an owner-occupier, one must be charged tax on the beneficial enjoyment of it.

Purists try to justify Schedule A tax, which is an annual tax on capital, by saying that the owner-occupier benefits from the house, that he has advantages over the man who is paying rent, and that it is unfair, therefore, to let him get off scot-free from tax. In justifying Schedule A they say that a house is quite different from any other asset, that it is a necessity of life, that if one does not own it one must pay rent, and that one can get income from it if one chooses not to live in it but to let it. One could say exactly the same thing about my right hon. Friend's suit.

Perhaps I am labouring this suit example. Hon. Members may say "De minimis non curat tax." The suit is merely a small matter. Larger items like a car, a television set, jewellery, a mink coat, a refrigerator, furniture, a cooker, a vacuum cleaner and, indeed, a caravan, are all articles which can be rented, and none is subject to Schedule A tax if it is owned. Therefore, Schedule A is a penalty upon one type of thrifty owner, the type whom we are endeavouring to encourage by the House Purchase and Housing Act. Yet the more he pays off the mortgage he may be able to raise by virtue of that Act the more Schedule A tax he has to pay. The more he improves his property, by reason of the reforms in law under that Act, the more he risks being assessed at a higher Schedule A figure. Because of his thrift he lives rent-free, and we tax him on the financial freedom which he has bought for himself.

We tax him because he might have invested his money in an interest-bearing security. But where does the argument lead us that he might have invested his money elsewhere, which could have produced an income that would have been taxed? On this argument the tax inspector might say to him, "You might have invested in 8 per cents. and not in 3½ per cents. Therefore, I tax you on an investment at 8 per cent." He might say, "You must not leave your money idle in the bank earning no interest. I must assess you on the money lying in the bank." That is the logic of the argument that because a person invests money in a house he must be assessed as if he were earning an income from it.

The inspector might tell my right hon. Friend "You should not have invested in that suit. You should have invested in something producing an income." I am sorry if I am stripping my right hon. Friend down to his vest and pants. What I am endeavouring to do is to strip the Schedule A argument to that ridiculous condition and, indeed, worse. Let me remove the last of the flimsy vestiges of the arguments for Schedule A. It is not a tax on dwellings or on housing accommodation. As the hon. Member for Huddersfield, West says, if a person lives in a caravan he escapes the Schedule A tax altogether. He purchases a £5,000 caravan and he is not charged Schedule A tax on it, but if he purchases a £500 cottage he has to pay under Schedule A. A person can live in a £10,000 houseboat and escape Schedule A. It is not a tax on house accommodation. It is a tax on a house; and no other asset than a house suffers this annual tax.

4.15 p.m.

Moreover, there is a distinction between those who gain benefits from a house. For example, a council house tenant does not pay tax on the subsidised part of his rent. The result is that the owner-occupier has to pay part of the rent of his subsidised neighbour in a council house, and he is paying it out of taxed income. Let us suppose that there is a tenant and an owner-occupier both earning the same salary and both having no other income. After they have both suffered a P.A.Y.E. deduction, the balance in their hands is taxed income, but the owner-occupier is then called upon to pay a further sum in tax, namely, Schedule A on his house. Therefore, he is paying it out of taxed income.

Mr. Douglas Jay (Battersea, North)

He does not pay rent.

Mr. Page

Rent, of course, is not taxation. It does not go to the Chancellor. I complain that the Chancellor is collecting double tax. Out of his already taxed wages the owner-occupier is paying tax again. This is really double taxation with a vengeance. To the extent of his Schedule A assessment, he was paying 17s. in the £. He will now be paying 15s. 6d. in the £, and even that double taxation falls unevenly because of the fallacious principle of the net annual value.

Two-thirds of the residential owner-occupied property in the country is based on a pre-war valuation for the purposes of Schedule A and the other one-third on a post-war valuation. Those who argue for Schedule A cannot possibly sustain any argument for that unfair discrimination between those who happen to be on a pre-war valuation and those who happen to be on a post-war valuation. If one is arguing for Schedule A and one is faced with that sort of proposition, one is forced to argue for a total revaluation. That is the only way to bring fairness if Schedule A tax is retained. Anyone who desires to argue in favour of a revaluation is politically quite welcome to do so but we all know how disastrous a revaluation of property for Schedule A might be at present. Unlike a revaluation for rates, the Income Tax rate cannot be adjusted to meet the needs of the district. It must be levied at the general rate for the whole country. Therefore, a revaluation would be very serious at present.

Here, then, is a tax which, first, is unique in being an annual tax on a hypothetical income and thus, in effect, is a capital tax. Secondly, it is a deterrent to a desirable form of thrift, namely, home-ownership. Thirdly, it is a tax the incidence of which is uneven, unfair and unjust. The only thing to be said for it is that it earns the Treasury £40 million gross, but £34 million if one knocks off the maintenance claims, and, I imagine, not much more than £30 million if one knocks off the cost of administration.

I can imagine that from a Treasury point of view the Chancellor wants to hang on to the tax. Due to the immense success of Conservative housing policy over the past years, the total national gross value of the residential owner-occupied properties has risen immensely. Taking the last two years alone, that gross value has risen from £155 million to £175 million. That represents an increase of about £15 million in net annual value, and an increase of about £5 million in tax. I have no doubt that the Treasury sees a further increase in the yield from this tax from the housing policy of the next Conservative Government.

I should like to warn my right hon. Friend, however, about the figures now appearing for maintenance claims. I do not want to deal with maintenance claims in detail, because there is on the Notice Paper a Clause which I understand we may have the opportunity of debating which deals specifically with statutory allowance and maintenance claims. But I would point out that when I and some of my hon. Friends started a little publicity on this subject twelve to eighteen months ago and, in the course of it, asked the Chancellor a few Parliamentary Questions, my right hon. Friend told us at that time that only one in every twelve residential owner-occupiers made a maintenance claim. Recently the figures given have been that one in every ten of the residential owner-occupiers makes a main- tenance claim. So, from the publicity on this subject, the maintenance claims are increasing. I have a suspicion that they will increase yet more and that a large part of the other nine-tenths may be roused to make such claims. At the moment the one-tenth represents £6 million of maintenance claims. That is a reduction from the gross figure of £40 million yield from Schedule A tax to the £34 million which is the net yield.

I would not be at all sorry if the maintenance claims became so popular that the net yield from this tax was so decreased, and the administration costs so increased, that my right hon. Friend found it not worth while collecting Vie tax any more. Schedule A is a tax on an educational disability; in other words, the lack of aptitude to tackle the complicated clerical work involved in making a maintenance claim. Therefore, it falls heavily upon the young manual worker or the elderly widow.

I have seen this happen in the following respect. In the middle of my constituency most of the houses are small, owner-occupied ones. If I address an audience in the middle of my constituency amongst those people and mention Schedule A, they are delighted with the idea of it being abolished. At one end of my constituency, however, there are the rather wealthy house owners, and if I mention Schedule A in addressing an audience of those people, smirks appear on their faces until someone asks rather complacently, "But who pays Schedule A?" They all put in their maintenance claims, of course, and so it is those who are clever enough to make this claim who get off Schedule A.

Mr. Douglas Houghton (Sowerby)

The hon. Gentleman is suggesting that all that has to be done to put in a maintenance claim is to take the trouble to write out some figures. He must remind the Committee that it is necessary to spend the money on repairs. Moreover, the five years' average is quite a serious check on the rendering of maintenance claims year by year, as I have found out from personal experience, and I am sure he has, too.

Mr. Page

I did not wish to imply that it involves merely writing out figures. It involves a lot more than that. It involves keeping receipted accounts over five years and all the other complications—and, incidentally, spending the money on the property. I did not think that hon. and right hon. Gentlemen opposite were so foolish as to misunderstand me in thinking that one had not got to spend the money. Of course, one has to spend the money, but it does not take an enormous expenditure of money to cover the Schedule A assessment at the present cost of labour and materials. Perhaps we may come to that on a later Clause which is to be proposed. I am only saying now that we ought not to base any tax upon the lack of ability to escape from it, which is what is happening with Schedule A at present.

If my right hon. Friend says that Schedule A is a good tax, that it ought to be retained, that administratively it can he collected and that he sees no reason for abolishing it, I shall be tempted to join the hon. Member for Huddersfield, West in the Lobby in support of his proposed Clause. If, on the other hand, my right hon. Friend says, "Schedule A is a had tax, let us get rid of it as quickly as we can, but I am sorry that I cannot afford to get rid of it this year"—

Mr. John Rankin (Glasgow, Govan)

Escape clause.

Mr. Page

—then my protest would be no more than to abstain from voting.

Mr. John Barter (Ealing, North)

This debate reflects a wide and widening public interest in the question of Schedule A. The process whereby a home owner is charged Income Tax on the basis of somebody else's assessment of what rent he might have received twenty-three years ago had his house existed, which it probably did not, and had he rented it, which he probably did not, is obviously absurd.

This view of absurdity is taken by many responsible financial organs and professional organisations. In their representations to the Royal Commission on the Taxation of Profits and Income, the Institute of Chartered Accountants of Scotland took this view. As recently as during the time the Chancellor was preparing his recent Budget, representations were received from a number of organisations who supported the view, amongst them the Institute of Taxation, which made seven recommendations to the Chancellor, the first of which was that he should abolish Schedule A. Indeed, the Institute concluded that part of its suggestion with the words, The Institute is confident that no other proposal can carry a greater weight of argument in its favour. There were fifteen recommendations at the same time from the Association of Certified and Corporate Accountants. The first on the list was the abolition of Schedule A.

The cause of the abolition of Schedule A has been espoused widely in the Press. The Financial Times leader of 14th February this year stated: … in this case the removal of an indefensible part of the system would both improve our tax structure and serve a useful social purpose. It would not unduly favour owner-occupiers, who would still have their rates to pay, and would merely be put in the position enjoyed by owners of other kinds of non-income-producing property. This is a respectable argument from a financially respectable source.

The Financial Times is not the only organ of the Press which has followed this line but, bearing in mind the advice recently given by the hon. Gentleman the Member for South Ayrshire (Mr. Emrys Hughes), I do not propose to quote from The Times or, indeed, any other paper.

I must confess to having a preference for another proposed Clause on the same subject which appeared earlier on the Amendment Paper. That had the virtue of consistency, in that it took the same form as it did in last years' discussions on the Finance Bill. However, I am happy to see that the Liberal Party has come some way with us in our reform proposals, in that they are now prepared, which they were not last year, not to limit the concession to £100. The hon. Gentleman the Member for Huddersfield, West (Mr. Wade), in the course of his speech, took note of some other suggestions which I was pleased to make.

It is important to see the historic background of this tax, because it is a pertinent part of the argument. The ownership of property has been considered a proper basis for assessing tax liability for over 1,000 years but it was first given legislative effect under the title of Schedule A in Addington's Property and Income Tax Act of 1803. It will be apparent to the Committee, therefore, that it has now lasted for a period of 156 years. Lest this long period of operation should impart a fallacious aura of respectability, may I remind the Committee that its now utterly discredited predecessor, the Window Tax, lasted for 155 years. The Chancellor, by overlooking the wealth of advice he has received on this subject, has perpetuated this tax for one year more than its now utterly discredited predecessor.

The main basis for the case to do away with Schedule A rests upon the change in the social structure of our society.

4.30 p.m.

Time was when the ownership of land was in the hands of the few and could reasonably be regarded as evidence of wealth. Indeed, in 1803, when this tax was first introduced, there were only 2 million homes in the whole of Great Britain—and for this information I rely upon the Chancellor's own estimate. By 1920 the number had increased to 8½ million and the number of owner-occupiers to a figure between 1 million and 1¼ million. After 30 years, in 1950, out of the 13½ million homes, there were 4 million-occupiers. In 1958, out of 15¾ million homes, there were 5½ to 6 million owner-occupiers. There are nearly half as many more owner-occupiers today as there were only eight years ago. This growth of owner-occupation has taken place during a period when Schedule A has been based on pre-war valuations and not on up-to-date valuations. Today, with this enormous, and I hope continuing, growth of owner-occupation, the ownership of a house is less evidence of wealth than evidence of a substantial debt to a building society.

That is the picture of the change in the social structure compared with the day when Schedule A was first placed on the Statute Book: a population six times as great, nearly ten times as many homes, and probably one hundred times as many owner-occupiers.

There are many other arguments in support of the abolition of Schedule A. In our Income Tax system the ownership of a house is the only subject of a notional assessment based on an income which might have been derived if a completely different set of circumstances had prevailed, and this is an extraordinary situation. Being itself artificial, it gives rise to a number of anomalies. The examples of persons living in a caravan or in a houseboat have already been quoted, and there are many others which might equally be provided.

My hon. Friend the Member for Crosby (Mr. Page) has pointed out that the tax is costly to administer. We are told that the Inland Revenue staff who would be released if Schedule A were abolished would save only about £500,000, but this is on the basis of only one person in ten making an application for additional maintenance relief on his house. At the moment about 600,000 people make a claim and over 5 million owner-occupiers do not. There is little doubt that, with the proper help, more people could claim than in fact do so at the moment.

The present statutory allowance was fixed in 1928. It is deducted automatically from the gross value of the house. For the small house in 1928 it was fixed at one-quarter of the gross value of the house. Any excess of actual repair costs and the cost of fire insurance premiums over this statutory deduction can be claimed for Income Tax relief against the Schedule A assessment. I think that that covers the point made by the hon. Member for Sowerby (Mr. Houghton).

The Parliamentary Secretary to the Ministry of Housing and Local Government, speaking on 5th May, 1958, said: … I should say that it is fair to reckon that since that time the costs of house maintenance have risen three or four times."—[OFFICIAL REPORT, 5th May, 1958; Vol. 587, c. 1002.] The rise in the cost of house maintenance between 1928 and 1936, I think the Committee will agree, was negligible. It follows, therefore, that if the one-quarter relief for repair charges was considered reasonable, fair and adequate in 1928, and again in 1936–37 when the last valuation took place, and if the cost of repairs has risen by three or four times since that date, then a well-maintained house should properly attract relief from Schedule A today very nearly to the full extent of the Schedule A assessment.

Does the Chancellor need convincing on this point? Or does he feel that every step should be taken to encourage the home owners to put in all justifiable maintenance claims, to send them rolling into the Inland Revenue offices, so that the Inland Revenue staff has to be built up and he finds that the yield from the tax drops almost as rapidly as his administrative costs rise?

I have said, and others have maintained, that the collection of Schedule A is a costly affair. It can be shown that the whole system of valuing every house in the country for Schedule A purposes is operated almost exclusively in order to tax the owner-occupier. The only classes of persons who are brought within the tax because of this valuation are the owner-occupier and the beneficial occupier, the person who enjoys a house at a rent less than the actual annual value. All the other classes concerned can already be taxed under other schedules by existing legislation. In consequence, the whole costly process of valuation for Schedule A purposes is carried out in order to grasp something from the owner-occupier.

The whole system of maintenance claims is complicated and bewildering, and many people find it extremely difficult to follow. Unless the home owner seeks competent advice—and it often pays him to do so—he either does not know the system at all or he thinks that it does not apply to him. How often have we heard people say, "I cannot make a maintenance claim. I do not pay Schedule A because my building society interest exceeds Schedule A." That is a completely fallacious argument.

Indeed, the whole system is complex and difficult of comprehension. For example, it takes an expert, whatever that word may mean in this connection, to understand that while a home owner cannot charge the cost of his own time in undertaking repairs in his house, he can in certain circumstances, and given certain conditions, make a charge for his wife's time for tax relief.

As I understand it, the main arguments for retaining the tax are three-fold. First, there is the argument of taxable capacity. There is the false assumption that a man who owns a home, a mortgage and probably an outstanding bill for the rates is a wealthy man and, therefore, has taxable capacity which can be taken into account on this assessment.

Secondly, there is the theory of alternative investment. This takes a number of forms, but in the main it rests on the assumption that the buyer of a house has, in his own option, the alternative of buying a house or of investing the equivalent amount of money in an interest-bearing security. I do not know how many hon. Members have tried to raise a mortgage with a building society. I do not know how many have been to the building society and said, "I should like to borrow £3,000 from you and I will decide, after you have provided the money, whether to invest it in a house or in an interest-bearing security." The point is that the option does not exist for the average buyer of a house, and I think it is clear that in modern circumstances the majority of houses are purchased with the aid of mortgage finance in one way or another.

The third argument rests on the yield of the tax—the £35-£36 million which this Tax produces in a year in its application to home owners.

I have said enough to indicate that it is our confident anticipation that maintenance claims will increase in the coming years, that the yield of the tax will decline and that the cost of administering the tax will almost inevitably increase. In connection with the question of maintenance claims, the Chancellor may quite reasonably maintain that it would be fair, when he considered maintenance claims on 1959 values, that they should be offset against 1959 annual values of house property. In fact, of course, house property is still based on 1936–37 values.

An important principle is at stake here. If the Chancellor adheres to the respectability of the argument for retaining Schedule A for owner-occupiers, then he must accept that a revaluation, probably to three times the present value—indeed, he has not disagreed with this figure when it has been put to him in Parliamentary questions—is inevitable. If that takes place, the owner-occupier's tax bill in respect of his house will rise by far more than three times. The increase may possibly take him into a new Income Tax or Surtax class. Those few who at present are putting in maintenance claims for excess costs of maintenance will not get more than the amount of relief which they are being given today on a lower valuation. The tax is either respectable, in which case the revaluation is inevitable, or else it is not and my right hon. Friend should pronounce its doom.

Property ownership makes for independence. It helps to diffuse power and it gives the individual a sense of security and responsibility. The natural desire to own is itself a powerful incentive to earn and to save, and both these activities, I think, should commend themselves to the Chancellor. Indeed, he has used that argument himself in other connections, and he should consider the argument pertinent in its application to the potential abolition of Schedule A.

Home ownership has grown enormously during a period when assessments have been under-valued. There is a fear in the minds of many home owners about the possibilities of a revaluation and its consequences. I ask the Chancellor to remove that fear from the minds of home owners in this country and to give a further impetus to the development of home ownership, which I am sure we should all like to see. I prophesy that the tax will end and that the fiscal reform will come. I think that the Chancellor is the man to see that it does.

Mr. T. L. Iremonger (Ilford, North)

My right hon. Friend is so sensitive, sympathetic and perspicacious that he may be aware that in an exceedingly tedious speech on the Budget I referred to this subject and said that I hoped he would see his way to abolish Schedule A. I therefore regard it as a point of honour to rise to support the new Clause. The arguments have been very well put by my hon. Friends, and I do not intend to delay the Committee further by going into them myself, but I give the warmest and most earnest support to the Clause. It has profound social implications. My hon. Friend the Member for Ealing, North (Mr. Barter) is quite right when he says that the tax will go any way and will go soon.

It would be unreasonable to expect my right hon. Friend to accept the new Clause in its present form, and I would not normally vote for it, but rather than acquiesce in an outright rejection of it, I would vote for it. I therefore hope that my right hon. Friend will recognise the soundness of the general argument against the tax on social grounds and say that it has "the skids" under it and that he is seriously contemplating abolishing it. I am sure that he will have opportunities of abolishing it for many years, but I hope that he will decide not to wait so long before he does abolish it. The Committee, I am sure, would be sympathetic if he recognised the strength of the arguments against the tax. I hope that he understands that if he feels that he must stand firm by the tax, root and branch and on principle, I shall have to go into the Lobby in support of the new Clause.

4.45 p.m.

Mr. Jay

We all want to encourage home ownership, but in doing that we do not wish to open a loophole for mass tax avoidance by big property owners. I have listened to the arguments put forward by hon. Members on both sides, and it seems to me that if we accept some of the sweeping proposals put forward the result would be that, under the guise of trying to help the small owner-occupier, we shall be giving tax reliefs to owners of large properties of many different kinds.

I spend a lot of time encouraging the principle of home ownership in my constituency at weekends. I advise people who are badly housed to try to buy their own houses. But I never find that the difficulty they raise in this connection is the incidence of Schedule A. The difficulty in the way of the ordinary ill-housed father of a family becoming an owner-occupier is, first, the large deposit which is required. The Government have at last adopted our proposal for enabling loans of almost 100 per cent. to be made available.

Another difficulty which hon. Members have not mentioned is the very high interest rate which has to be paid on the subsequent instalments. If hon. Members opposite and the Members of the Liberal Party are so keen on encouraging home ownership, they ought to be putting a little more pressure on the Chancellor to bring down the interest rates.

Mr. Raymond Gower (Barry)

Why does the right hon. Gentleman say that this proposal would put a lot of money into the hands of very large property owners? First, the Clause is limited to owner-occupiers and, secondly, to one house in owner-occupation. That is at variance with the right hon. Gentleman's suggestion about a lot of money being put into the hands of property owners.

Mr. Jay

I will deal with this matter in detail. It is true that the new Clause is confined to the owner-occupier, but the hon. Member for Huddersfield, West (Mr. Wade), who moved the new Clause, said that he wished to sweep away Schedule A altogether. Therefore, we ought to consider that proposition briefly. Some hon. Members opposite appeared to support that argument. If we were to wipe out Schedule A for Income Tax purposes it would simply mean a large tax relief for one form of property owner as compared with another. It would not operate fairly even as between the property owner who invested in securities—

The Temporary Chairman (Mr. F. Blackburn)

It is not necessary to answer points which are not raised by the Clause.

Mr. Jay

That may be true, Mr. Blackburn, but these arguments have been advanced, and before we look at the more limited definition the point ought to be made in passing—

The Temporary Chairman

I thought that the right hon. Member had made his point in passing before I stopped him.

Mr. Jay

I was in the course of doing so. However, let us limit ourselves to the terms of the Clause, although the argument has already been upon a wider basis. Even if we limit ourselves to giving tax relief to the owner-occupier of residential property which is a much more attractive and plausible proposition—it would seem to go too far. Even if a person were in owner-occupation of only one house there might be a lot of land attached to it. I am quite unconvinced by the arguments put forward by the hon. Member for Huddersfield, West to the effect that there would be no inequity between the owner-occupier and the tenant who is renting his house out of untaxed income.

The Royal Commission is quite right in saying that, in principle, there would be inequity in that case. There is no doubt that the ordinary tenant has to pay rent out of his untaxed income. The owner-occupier would be living in an unrented house. He would be exempt from rent because he was receiving an income by virtue of the property which he had bought when he purchased the house, and he would be paying no tax on that at all.

Mr. Barter

I rise only to correct a word used by the right hon. Gentleman. He referred to untaxed income. I am sure that he was seeking to imply that rent is paid out of taxed income and not out of untaxed income. Further, the right hon. Gentleman will bear in mind the fact that a house is purchased out of taxed income over a long period.

Mr. Jay

Yes, I should have said "taxed income." But the house is normally purchased out of savings—or so I should think. Anyway, I will leave that point. It must be either purchased out of savings or out of borrowings.

Mr. Page

When a house is bought by means of a building society mortgage the purchaser is paying his instalments out of taxed income all the time. He purchases his house out of taxed income.

Mr. Jay

It would be possible for him to purchase some form of income in the form of securities, from his savings, or by borrowed money, and he would then pay tax on the income from those securities. Therefore, in principle it seems to me that the arguments advanced by the Royal Commission are quite sound.

Much has been said by hon. Members opposite about suits of clothes, motor cars and caravans. It has been suggested that because caravans, houseboats and motor cars are not taxed houses should not be taxed. That is not a convincing argument. It is possible that hon. Members opposite may have made out a case for extending Schedule A to houseboats. Their argument may be extended in that way as well as the other. In all these matters of tax a line must be drawn somewhere, and the Royal Commission was right in saying that the fact that it was not practicable to extend the tax to durable goods such as motor cars was no argument for not having a tax upon houses.

It does not seem necessary to abolish the tax altogether, and I understand that nobody is really arguing for that, or for a complete abolition for all owner-occupiers, however wealthy and however large their houses and land. Nevertheless, there are two propositions to bear in mind in considering the advisability of making house purchase easier for the genuine small man. First, is there any reason why we should not apply the principle adopted in other parts of our Income Tax, of exempting some part of the income in question? We do that in the case of earned income allowance, where we have these wonderful fractions, such as two-ninths. Further, we exempt the first £15 of small savings. Is there any reason why that principle should not be applied in the case of Schedule A for the owner-occupier only?

This is really a test of the sincerity of hon. Members opposite who claim that they are trying to help the small owner-occupier and not to open a large loophole for tax avoidance by the majority of property owners. If that is what they are genuinely asking for, is not there a case—as a start, anyway—for exempting a small proportion of the Schedule A income of the owner-occupier? Perhaps the most logical figure to take would be £15, which has already been granted in respect of other types of savings. A strong argument could be advanced for that proposition, and it would be of some help to the small man whom hon. Members opposite profess to want to help.

Secondly, there seems to be a case for some easement in the matter of the statutory allowance for maintenance claims. That matter will be discussed on another Clause, and I shall not elaborate it further, but it would help the small man and remove an obstacle in the way of the potential home owner.

Even though the Chancellor may stick to the fundamental principle advanced by the Royal Commission, that Schedule A is one of the bases of Income Tax, I hope that he will consider both the suggestions that I have made, which would encourage home ownership.

The Chancellor of the Exchequer (Mr. Derick Heathcoat Amory)

I entirely accept the arguments in favour of the social benefits of home ownership advanced most persuasively by the hon. Member for Huddersfield, West (Mr. Wade), and also by my hon. Friends. I agree with the social philosophy lying behind the argument. It is a healthy aspiration to want to own one's own home, and in general it is a source of satisfaction to do so. The Government have recognised the claims of home ownership in different ways. We have reduced the Stamp Duty and have taken a big step forward in recent legislation. The question is: would it be right to give the fiscal relief proposed, which would cost £40 million in a full year? I want to make it clear that that £40 million is a net estimate after making provision for the maintenance claims allowed.

There are respectable arguments on either side, and it is not my wish or intention to reject the proposal out of hand or for all time. It is widely held to be unfair that tax should be paid on a possession which does not produce a cash income, but this view is by no universally held. There is a large body of opinion, which included both the majority and minority of the members of the Royal Commission, which holds equally strongly that it would cause serious relative injustice if the charge on owner-occupied property were abolished. Every hon. Member will probably feel that we should give proper weight to the expressed views of the Royal Commission, although, in a matter where social implications are involved, I do not maintain that such fiscal requirements should always overrule other considerations.

An owner-occupied house may not produce cash income, but it produces the equivalent in the form of freedom from rent. Everyone must have a place to live in. My hon. Friend the Member for Crosby (Mr. Page) made a flattering reference to the elegance of my suit. I will not say whether the recent removal of hire-purchase restrictions has had anything to do with its acquisition, but the fact is that most people are owner-occupiers of their trousers, although not of their houses. Therefore, in doing what we would like to do for owner-occupiers we must be fair to those who, for one reason or another, cannot own their own houses and must therefore rent accommodation.

Our present law gives no tax reduction for the rent of the taxpayer's residence. The householder must meet his rent out of his net income after tax, as he must in respect of any other household expenses.

Mr. Stan Awbery (Bristol, Central)

Does the Chancellor agree that Schedule A is a main charge upon the owner-occupier who, instead of paying rent to a landlord, has to pay it to the State?

Mr. Amory

There is something in what the hon. Gentleman says. He receives no cash income but, other things being equal, he is better off than someone who has the same income but has to rent his accommodation

5.0 p.m.

If the charges under Schedule A were abolished, the tax system would be giving a benefit to the owner-occupiers as compared with a man who has to pay his own rent. There may be impelling arguments for giving that benefit, and there are certainly some strong arguments for doing it, but we must be in no doubt that that would be the effect. It would be a very important change in our tax law. If we were to relieve owner-occupiers from Schedule A tax, there would be a case for a claim by tenant occupiers that they should be given an Income Tax reduction in respect of the rent that they pay, Such a reduction would be very expensive indeed and would amount to perhaps another £60 million.

The hon. Member for Huddersfield, West referred to the cost of collection. It is very difficult to separate the cost of collection of Schedule A from other forms of tax which are partially collected at the same time, but in our opinion the cost of collection of Schedule A tax at present is not abnormally high.

I have been accused of illogicality in not taxing the enjoyment of other items of property besides land and houses. We live in a real and, perhaps, not too logical world, but we all have to have somewhere to live, and the ownership of other possessions is more a matter of choice. Caravans have been mentioned, but they were not made assessable for tax largely because they were mobile and not regarded as permanent homes. Boats of various descriptions rather fall into the same category. If caravans were permanently attached to the ground so that they could not be regarded as anything else but permanent homes, they would really fall into the category of houses rather than caravans.

Mr. G. R. Mitchison (Kettering)

And yachts on the rocks?

Mr. Amory

I am now taking a very great interest in the development of the Hovercraft.

Practical considerations of valuation and assessment are against a general tax on the annual valuation of chattels, whatever objective case there might be otherwise; but, for example, motor cars are subject to Purchase Tax. As a practical matter, as things are at present, the owner-occupier is by no means ungenerously treated in his assessment because the ordinary Schedule A assessment is based on a valuation made in 1935, so that it does not result in a charge on the amount of rent that might otherwise have to be paid at current value. Despite this low valuation, the owner-occupier is able to make his maintenance claims by reference to his expenditure on repairs at current prices.

Those who pay Schedule A this year will get relief through the reduction in the standard rate of Income Tax. On grounds of principle there is room for two views, and opinion is sharply divided. On the matter of principle, it is right that we should continue to give careful consideration to the arguments on either side, and, as I said at the beginning of my speech, I would not wish to express a dogmatic view between those arguments, or to say that the relief in Schedule A is something that we ought to shut out of our consideration for all times. I shall certainly not wish to do that, but, on the grounds of cost, I could not recommend the Committee to accept this proposal this year when such substantial relief is being given through the reduction in the standard rate of Income Tax to owner-occupiers, as to all other Income Tax payers.

While I sympathise with the aims of the movers of the Clause, on grounds of cost alone I must advise the Committee that the Clause ought not to be accepted.

Mr. Barter

Would my right hon. Friend find the argument more convincing if there were a great increase in the number of maintenance claims, with a consequent reduction in the net yield?

Mr. Wade

The Chancellor always says "No" very politely, but it nevertheless seems to be "No". I would be out of order if I were to attempt to show the loss of revenue might be raised in some other way. The Chancellor has told us that he is expressing no dogmatic view, but as his view seems to be one

of sympathy but no reduction, I cannot withdraw the Clause.

Question put, That the Clause be read a Second time:—

The Committee divided: Ayes 8, Noes 231.

Division No. 133.] AYES [5.9 p.m.
Bonham Carter, Mark Grimond, J.
Bowen, E. R. (Cardigan) Hughes, Hector (Aberdeen, N.) TELLERS FOR THE AYES:
Brown, Thomas (Ince) Kenyon, C. Mr. Wade and Mr. Holt.
Davies, Rt. Hn. Clement (Montgomery) Smith, Ellis, (Stoke, S.)
NOES
Agnew, Sir Peter Emmet, Hon. Mrs. Evelyn Legge-Bourke, Maj. E. A. H.
Aitken, W. T. Errington, Sir Eric Legh, Hon. Peter (Petersfield)
Allan, R. A. (Paddington, S.) Erroll, F. J. Lennox-Boyd, Rt. Hon. A. T.
Alport, C. J. M. Farey-Jones, F. W. Lindsay, Martin (Solihull)
Amory, Rt. Hn. Heathcoat (Tiverton) Fell, A. Lloyd, Maj. Sir Guy (Renfrew, E.)
Arbuthnot, John Fisher, Nigel Longden, Gilbert
Armstrong, C. W. Forrest, G. Loveys, Walter H.
Ashton, H. Foster, John Lucas, Sir Jocelyn (Portsmouth, S.)
Atkins, H. E. Fraser, Hon. Hugh (Stone) Lucas, P. B. (Brentford & Chiswick)
Baldock, Lt.-Cmdr. J. M. Freeth, Denzil Lucas-Tooth, Sir Hugh
Balniel, Lord Galbraith, Hon. T. G. D. McAdden, S. J.
Barber, Anthony Gammans, Lady Macdonald, Sir Peter
Barlow, Sir John George, J. C. (Pollok) McLaughlin, Mrs. P.
Barter, John Gibson-Watt, D. Maclean, Sir Fitzroy (Lancaster)
Batsford, Brian Glover, D. McMaster, Stanley
Beamish, Col. Tufton Glyn, Col. Richard H. Macmillan, Rt. Hn. Harold (Bromley)
Bell, Ronald (Bucks, S.) Godber, J. B. Macmillan, Maurice (Halifax)
Bennett, F. M. (Torquay) Goodhart, Philip Macpherson, Niall (Dumfries)
Bevins, J. R. (Toxteth) Gough, C. F. H. Maddan, Martin
Bidgood, J. C. Gower, H. R. Maitland, Hon. Patrick (Lanark)
Biggs-Davison, J. A. Graham, Sir Fergus Markham, Major Sir Frank
Bingham, R. M. Grant, Rt. Hon. W. (Woodside) Marshall, Douglas
Birch, Rt. Hon. Nigel Grant-Ferris, Wg-Cdr. R. (Nantwich) Maudling, Rt. Hon. R.
Bishop, F. P. Green, A. Mawby, R. L.
Black, Sir Cyril Gresham Cooke, R. Maydon, Lt.-Cmdr. S. L. C.
Body, R. F. Grimston, Sir Robert (Westbury) Medlicott, Sir Frank
Bossom, Sir Alfred Harris, Frederic (Croydon, N.W.) Molson, Rt. Hon. Hugh
Boyd-Carpenter, Rt. Hon. J. A. Harris, Reader (Heston) Morrison, John (Salisbury)
Boyle, Sir Edward Harrison, A. B. C. (Maldon) Mott-Radclyffe, Sir Charles
Braithwaite, Sir Albert (Harrow, W.) Harrison, Col. J. H. (Eye) Nabarro, G. D. N.
Brewis, John Harvey, John (Walthamstow, E.) Nairn, D. L. S.
Bromley-Davenport, Lt.-Col. W. H. Hay, John Neave, Airey
Brooman-White, R. C. Heald, Rt. Hon. Sir Lionel Nicholson, Sir Godfrey (Farnham)
Browne, J. Nixon (Craigton) Heath, Rt. Hon. E. R. G. Nicolson, N. (B'n'mth, E. & Chr'ch)
Bryan, P. Henderson-Stewart, Sir James Noble, Cmdr. Rt. Hon. Allan
Bullus, Wing Commander E. E. Hicks-Beach, Maj. W. W. Noble, Michael (Argyll)
Burden, F. F. A. Hill, Rt. Hon. Charles (Luton) Oakshott, H. D.
Butcher, Sir Herbert Hill, Mrs. E. (Wythenshawe) Ormsby-Gore, Rt. Hn. W. D.
Campbell, Sir David Hinchingbrooke, Viscount Orr, Capt. L. P. S.
Cary, Sir Robert Holland-Martin, C. J. Orr-Ewing, C. Ian (Hendon, N.)
Channon, H. P. G. Hope, Lord John Osborne, C.
Clarke, Brig. Terence (Portsmth, W.) Hornby, R. P. Pannell, N. A. (Kirkdale)
Cole, Norman Horobin, Sir Ian Partridge, E.
Conant, Maj. Sir Roger Howard, Gerald (Cambridgeshire) Peel, W. J.
Cooke, Robert Howard, John (Test) Peyton, J. W. W.
Cooper, A. E. Hughes-Young, M. H. C. Pickthorn, Sir Kenneth
Cordeaux, Lt.-Col. J. K. Hulbert, Sir Norman Pike, Miss Mervyn
Corfield, F. V. Hurd, Sir Anthony Pilkington, Capt. R A.
Courtney, Cdr. Anthony Hutchison Michael Clark (E'b'gh, S.) Pitt, Miss E. M.
Craddock, Beresford (Spelthorne) Hyde, Montgomery Pott, H. P.
Crosthwaite-Eyre, Col. O. E. Hylton-Foster, Rt. Hon. Sir Harry Powell, J. Enoch
Crowder, Sir John (Finchley) Irvine, Bryant Godman (Rye) Price, David (Eastleigh)
Crowder, Petre (Ruislip—Northwood) Jenkins, Robert (Dulwich) Prior-Palmer, Brig. O. L.
Cunningham, Knox Jennings, J. C. (Burton) Profumo, J. D.
Dance, J. C. G. Johnson, Dr. Donald (Carlisle) Ramsden, J. E.
D'Avigdor-Goldsmid, Sir Henry Johnson, Eric (Blackley) Redmayne, M.
Deedes, W. F. Jones, Rt. Hon. Aubrey (Hall Green) Rees-Davies, W. R.
de Ferranti, Basil Kerby, Capt. H. B. Remnant, Hon. P.
Donaldson, Cmdr. C. E. McA. Kerr, Sir Hamilton Renton, D. L. M.
Doughty, C. J. A. Kimball, M. Ridsdale, J. E.
du Cann, E. D. L. Lagden, G. W. Roberts, Sir Peter (Heeley)
Duncan, Sir James Lambton, Viscount Robinson, Sir Roland (Blackpool, S.)
Duthie, W. S. Langford-Holt, J. A. Roper, Sir Harold
Eden, J. B. (Bournemouth, West) Leather, E. H. C. Ropner, Col. Sir Leonard
Elliott, R. W. (Ne'castle upon Tyne,N.) Leavey, J. A. Scott-Miller, Cmdr. R.
Sharples, R. C. Teeling, W. Ward, Dame Irene (Tynemouth)
Simon, J. E. S. (Middlesbrough, W.) Temple, John M. Watkinson, Rt. Hon. Harold
Smithers, Peter (Winchester) Thomas, Leslie (Canterbury) Webbe, Sir H.
Smyth, Brig. Sir John (Norwood) Thompson, Kenneth (Walton) Webster, David
Stevens, Geoffrey Thorneycroft, Rt. Hon. P. Whitelaw, W. S. I.
Steward, Harold (Stockport, S.) Thornton-Kemsley, Sir Colin Williams, Paul (Sunderland, S.)
Stoddart-Scott, Col. Sir Malcolm Vane, W. M. F. Wills, Sir Gerald (Bridgwater)
Storey, S. Vaughan-Morgan, J. K. Wilson, Geoffrey (Truro)
Stuart, Rt. Hon. James (Moray) Vickers, Miss Joan Wolrige-Gordon, Patrick
Studholme, Sir Henry Vosper, Rt. Hon. D. F. Wood, Hon. R.
Summers, Sir Spencer Wakefield, Edward (Derbyshire, W.)
Taylor, Sir Charles (Eastbourne) Wall, Patrick TELLERS FOR THE NOES:
Taylor, William (Bradford, N.) Ward, Rt. Hon. G. R. (Worcester) Mr. Finlay and Mr. J. E. B, Hill.