HC Deb 17 April 1961 vol 638 cc819-21

I have received many representations about the need to reduce the levels of direct taxation, particularly Surtax. Surtax begins at £2,000. This figure was fixed in 1920. I learn from many quarters, sometimes unexpected quarters, that the present scope and level of Surtax is a substantial disincentive to effort and initiative.

I do not, however, feel able to provide for any relief of direct taxation to take effect in the year 1961–62. That will be a disappointment to many. Of course, so far as Surtax is concerned, the amount due next January will be upon income already earned in the past. It would be illogical to reduce what is already payable on past effort on the ground of giving an incentive to future effort.

Nevertheless, I consider that there is force in the arguments against the present level of Surtax. In the modern world, the work of the manager, the scientist, the technologist is of increasing importance, not only to himself but to the community. In other countries there are much higher rewards for individual effort and skill. Therefore, I want to do what I can to ensure that the present incidence of Surtax does not act as a disincentive to those who have positions of responsibility in our industries and elsewhere in our national life. Accordingly, I think it right to take action to modify, as far as earned incomes are concerned, the present rules. The changes I propose will be applicable to incomes earned—I repeat earned—during this new financial year and thereafter. In other words, the changes will affect what is payable on and after 1st January, 1963.

I propose two measures: First, the earned income allowance applicable to Income Tax—two-ninths up to £4,005 and one-ninth thereafter up to £9,945—will be deductible in computing income for Surtax purposes.

Secondly, the present position is that, leaving personal allowances aside, Surtax begins at £2,000. I propose, in effect, to lift this figure for earned income, again leaving personal allowances aside, to £4,000. Putting this change more precisely, but not more concisely, there will be a special allowance for Surtax purposes in respect of earned income, namely, a deduction of £2,000 or, if it is less, the excess of earned income, less the earned income relief, over £2,000.

Mr. Gerald Nabarro (Kidderminster)

Say that again.

Mr. Lloyd

My hon. Friend can read it. The effect of this together with my first proposal will be that Surtax will not be payable on earned income until it reaches £5,000 or more depending on personal allowances; for example, those given for children.

Mr. Nabarro

Jolly good.

Mr. Lloyd

These proposals will give no relief to incomes derived solely from investment. They will give maximum relief to incomes wholly earned. But because Surtax is a tax on total income they will affect the total burden of tax on mixed incomes comprising some earnings and some income from investments. But the relief will only flow from and be related to the amount earned. So, again, there will be an incentive to increase earnings.

I would like to make one further point. I have received many representations from married women anxious to engage in professional or other employment, but who are deterred from doing so by the system of aggregation of income for Surtax purposes. I do not feel able, in this Finance Bill, to change the system, but the proposals I have just announced will go a long way to solving this problem for a great many people.

The cost of my proposals will be £58 million in 1962–63 and £83 million in a full year.

Mr. Collick

What about the people below the Surtax levels?