§ I want to say something about business expenses.
§ I have been exercised in my mind about the tax treatment of expense allowances and benefits in kind received by directors and other senior executives. The question of business entertaining is closely linked. A great many firms pursue a strict policy in these matters—and nothing that I am going to say applies to them. I also realise that, in the pursuit of exports, the entertaining of overseas customers is necessary.
§ I think, however, that there is something behind this strong feeling which undoubtedly exists that some so-called business entertaining goes further than purely business motives. This is an unhealthy feature both on business and social grounds. I ask those concerned most seriously to consider whether some curtailment in the extent and scale of entertainment can be achieved without affecting business efficiency. It is a matter very difficult to deal with by legislation, but I shall review this matter again next year and I do not reject altogether the possibility of legislative action then.
§ As to motor cars and other benefits in kind, the existing law provides, in the case 816 of directors and those employees who earn £2,000 or more, for a tax charge on an amount equal to the annual value of the private use. I have authorised the Inland Revenue to institute a change in practice under which the annual value of the use of a car will be taken as 12½ per cent., instead of 9 per cent., of the car's original cost; and the amount attributable to private use will be calculated accordingly.
§ I also propose to include in the Finance Bill a Clause limiting the capital allowances that may be granted in respect of ordinary motor cars used by business and professional people to the allowances appropriate to a maximum cost of £2,000 for each car. If business men want to use more expensive cars, I think Chat it is not unreasonable that they should carry the excess over £2,000 themselves and not pass part of it on to the Exchequer.
§ A word about administrative improvements. I intend that the present form which employers are required to return to the Revenue showing expense allowances and benefits in kind should be revised so as to provide the Revenue with more precise information initially. I do not believe that this will in the end add to work as it will save subsequent inquiries.
§ I intend to adopt the recommendations of the Royal Commission on what are known as home savings arising during business travel. I have decided that the reduction of the allowance made for expenses incurred on business travel should not normally be applied in future in respect of expenditure on accommodation and such ordinary items as food and drink. This relaxation will be welcomed, I know, by those who go abroad in search of export orders. It is a source of very great irritation.
§ This, of course, does not mean that private expenditure, for example on holidays, taken in the course of a business trip, will be allowed, and, obviously, inquiries will continue to be made to ensure that expenditure of this kind is not included. The Inland Revenue proposes for the first time to issue a leaflet setting out the rules it follows in dealing with expenses claims under the special provision applicable to directors and senior executives. This leaflet will cover the new rules applying to home savings.
817§ The concessions I have announced will cost about £13½ million this year. They will reduce the surplus above the line to £424½ million. Having regard to the economic circumstances of which I have already spoken, I have decided that this surplus is not enough. I consider that I should provide for an above-the-line surplus of about £500 million, involving an overall deficit of under £100 million. I have, therefore, decided to raise an additional £80 million of tax. If this amount proves too little, I will be able to correct the position by the use of one or both of the regulators I have proposed. If it proves too much, I can use the first regulator to reduce Purchase Tax and the main Customs and Excise revenue duties.