§ (1) From the fiscal year 1961–62 any employed person shall have the right so to alter his code number that more tax can be deducted each week under section one hundred and fifty-seven (pay as you earn) of the Act of 1952 than would be so deducted if the code number had not been altered. At any time during the fiscal year such employee would have the right to revert to his actual code number.
§ (2) As soon as possible after the fifth day of April in any year the Commissioners of Inland Revenue shall issue to each taxpayer a certificate showing the amount of any overpayment in the preceding year. Such certificates shall be immediately encashable at any post office.
§ (3) If such certificate is deposited in the Post Office Savings Bank, interest at the rate current for deposits in the Post Office Savings Bank per annum shall be allowed on the amount thereof from the preceding sixth day of April.
§ (4) The maximum amount that may be saved by each employee in any one year shall not exceed ten per cent. of gross earned income in that year, or hundred pounds whichever is the less.
§ (5) The first twenty-five pounds of interest on such savings shall be exempted from income tax.
§ (6) At the conclusion of each month the Commissioners of Inland Revenue shall transfer to the Post Office Savings Bank such an amount which in the opinion of the Treasury is 1176 the equivalent of the savings for the preceding month.—[Mr. W. Clark.]
§ Brought up, and read the First time.
§ Mr. William Clark (Nottingham, South)
I beg to move, That the Clause be read a Second time.
I think that the House will agree that one of the weaknesses of our economy today is the high amount of consumer spending. I do not want to embark on an argument about exports. We must have a good home market in order to assist exports, but in the case of some commodities if there is a booming market it can activate against exports. Last year consumer spending in this country was about £17,000 million. Savings last year were extremely good, as they have been for successive years. I am sure that everyone in the House would like to pay tribute to the work of Lord Mackintosh and his National Savings Committee. They have done a tremendous amount of work. Even so, this country must save more and more money. If we could cut consumer spending by only 1 per cent. it would result in a saving of about £170 million. One very simple example is that if every member of the working population were to smoke only one cigarette less per day it would mean a saving of some £72 million a year.
1177 When we speak in such terms, it indicates that with a working population of 24 million a small saving per head could do the economy a tremendous amount of good—
Mr. H. Wilson
Will the hon. Gentleman tell the House what calculation he has made of the loss to the Treasury caused by this act of self-abnegation?
§ Mr. Clark
Yes. The loss to the Treasury in Customs Duty as a result of this cut in cigarette smoking would be about £6 million a year, but that still does not kill my point. It would still mean a saving of over £60 million, which is a considerable sum.
The House should pay attention to individual saving. Many people want to save, and could save, but find that the present method is far too inconvenient. Those hon. Members who have tried to transact business at a post office after the pay day, particularly a Saturday, know that it is absolutely impossible to get near the counter. So many people are buying their postal orders and so on for the various things in which they invest their money that it is almost impossible for people to save regularly through the Post Office.
The method outlined in the new Clause would make regular saving much easier. The pay-as-you-earn system covers about 20 million employees, each of whom has a code number on which each week the Revenue, through the employers, deducts a certain amount of Income Tax, after various allowances and so on have been taken into account. For example, if one has £15 a week and a code number 35, the weekly tax taken is about £2 4s. a week.
Each month, the employer, having deducted the tax from the employees, sends a cheque for the total to the Revenue, and at the end of each fiscal year he is under a statutory obligation to render to the Inland Revenue an annual return giving a complete summary of the tax he has deducted from each of his employees. The total shown in that return must agree with the amount the employer has paid over to the Revenue.
The P.A.Y.E. method has worked extremely well for the last nineteen or twenty years, and would be an admirable 1178 means of channelling savings. I might add, in parentheses, that I advocated this scheme at a Conservative Party conference in 1955, and I hope that some notice will be taken of it this evening. The suggested system would be quite simple to operate. As I have said, each employee has a code number, and if he wanted to save an extra 5s., 10s. or £1 a week, according to his personal circumstances—and I emphasise that this would be a voluntary act by the employee—all he would have to do would be to ask his employer to change his code number.
Let us take the previous example of the man in a code No. 35 and an income of £15. As I have said, his weekly tax is about £2 4s. If he wanted to save £1 weekly, he would go on to code No. 9 and his employer would deduct £3 4s. per week, which would show a saving of about £1 a week.
The beauty of this scheme and one of the conveniences of it is that there is no extra work for the employer and, as I shall prove later, this is extremely important when we are trying to use the P.A.Y.E. machinery in order to help the economy. The Revenue, of course, would receive this money monthly and at any time during the year the employee could opt to return to his original code number. One of the essential elements of savings is that the saver must at all times have control of the money he has saved.
Under the P.A.Y.E. machinery if an employee wished to go from code No. 35 to code No. 9—which would mean a saving for him of about £1 per week—and if he found during the fiscal year that, for one reason or another, he did not want to continue saving that £1, he would merely have to ask his employer to place him back on his original code number the following day and, from then on, he would pay the normal amount.
§ Mr. Houghton
Would the hon. Gentleman place any restraint on the chopping and changing about of code numbers too frequently? I am sure that he would wish to put some reasonable brake on a worker who might be just messing about with his code number from week to week. In most deduction schemes there is a minimum duration during which the deductions are to be 1179 made in order to discourage too frequent changes of mind.
§ Mr. Clark
That is a valid point. I am not trying to avoid answering it, but I shall cover it later. I do not entirely agree that one should restrict the saver, for, as I have pointed out, there is no extra work for the employer. The hon. Gentleman the Member for Sowerby (Mr. Houghton) realises, I am sure, that it is easy to work out an employee's tax whether the code number be 35 or 9. If it is agreed that the employee should have control over his savings, it must also be agreed that he should have the right to revert to his original code number during the fiscal year.
At the end of the year the annual return is sent to the Revenue and the Revenue checks all the calculations and if, as in the example I have given, it is found that an employee whose code number is 35 has, with an income of £15 per week, been using code number 9 for savings purposes, he will have saved about £1 per week. That is £52 in a year and, at the end of the year, when the Revenue has made its calculations from the annual return submitted by the employer and it is found that the man had overpaid by £52, the Revenue will issue a certificate of overpayment to the employee and that certificate must be encashable at any Post Office in the country.
That action will convince the employee that at any time he can get the money he has saved, and no Government—and I am not suggesting that my right hon. Friend or any Chancellor would do otherwise—would take action to prevent the certificates from being encashable. I will not develop this part of my argument further because I am sure that hon. Members will remember that certain Inland Revenue issues are not always encashable.
As for the criticism of this scheme, I have discussed this with employers, employees and various people who are interested in the savings movement. The employers have no criticism because, as I have explained, no extra work is placed on their shoulders and it is just as easy for them to work on the basis of a code No. 35 as a code No. 25. The employees have no criticism because during the fiscal year they can at any time return 1180 to their original code numbers. Where there may be criticism is in the delay that occurs at the end of the fiscal year, at 5th April, when the employees receive their encashable certificates from the Inland Revenue.
As for criticism from the Inland Revenue that there would be extra administrative work involved by the necessity to issue encashable certificates to as many employees as took part in the scheme, I come back to the tremendous work that Lord Mackintosh has done with the National Savings Movement. The National Savings Movement at the moment runs a very good industrial savings scheme. I believe there are about 53,000 industrial savings groups throughout the country. They cover 3¼ million employees who save about £100 million a year.
Here I come to the point that was made by the hon. Member for Sowerby about the possibility of employees chopping and changing about. Many of the industrial savings schemes are operated by means of deduction from wages, but the employee has the right at any time to get his money out. Of the £100 million saved in these industrial savings schemes, £80 million represents short-time savings. These may be for holidays, insurance policies—in fact, for a variety of reasons. Only 20 per cent., £20 million, represents what is known as long-term savings. It does not matter whether it is long-term or short-term savings; the fact that these savers have abstained from spending all of their income must help the economy of this country.
I do not think that the industrial savings schemes can be maintained at their previous level. I say that because so many firms are so conscious of the organisation and methods approach, in which firms are exhorted and encouraged to be more efficient, that they feel that they cannot afford to have unproductive labour. I think there will come a time—indeed, I think that time has already come—when some firms will say, "We cannot afford to keep one, two or three people on the staff looking after the industrial savings group in our factory."
We should also remember—and I trust that my right hon. and learned Friend will take note of this point—that the last graduated pensions scheme has put 1181 additional work on the employer. If there is to be any reduction in the clerical work done by employers, I am certain that the first to suffer will be the industrial savings groups. It is interesting to note that the figure of £100 million which is saved by the 53,000 industrial savings groups has not increased proportionately to the increase in incomes over the past few years. These industrial savings groups cover only 3¼ million workers in the country, whereas P.A.Y.E. affects 20 million workers. We should also remember that it is not an economic proposition for any employer to run an industrial savings scheme unless he has at least 200 employees. Hon. Members will agree that the bulk of the working population is employed in units of under 200, and consequently there is a whole field of potential savers who slip through this industrial savings scheme.
As to the question of the delay in administration, the return which is made on 5th April by all employers is checked, and in the Inland Revenue offices, with 20 million returns to deal with, 20 million calculations are made. I cannot understand why the Inland Revenue does not use some sort of calculating machine to make these very simple calculations.
Need we maintain collection districts for dealing with P.A.Y.E. analogous with the districts of inspectors of taxes? Why cannot we do for the collection of P.A.Y.E. taxes what we do for the National Insurance Fund and centralise the arrangements? If we centralised P.A.Y.E., we could then, perhaps, use computers to make all these calculations. The Treasury may say that computers cost a great deal of money—where should we find the money? If the scheme which I propose were a success, the money could easily be found.
Let us assume that the scheme were successful and, over twelve months, there was a saving of £200 million more than there is now. The Revenue would be receiving this money month by month, by instalments, and £200 million accumulated over twelve months represents about £100 million from the point of view of interest. Under the scheme I advocate, the employee, the saver, does not receive any interest in the first saving year, but the Revenue will have had £100 million for one year interest free. 1182 This will mean that the Treasury will not have had recourse to the discount market for that amount. Treasury bills cost 4½ per cent., roughly, and 4½ per cent. of £100 million would represent a saving of £4½ million. I should have thought that a saving of interest of that kind would mean that computers could be introduced to make all the P.A.Y.E. calculations each year, and make them so that there would not be the delay between the end of the fiscal year and the issue of the encashable certificate.
§ Mr. Diamond
Why does the hon. Member propose that the saver, whom he wishes to encourage, should not have any interest? Why should it be an encouragement to the employee to save to be told that he will not have interest until the following year?
§ Mr. Clark
I have the point covered, and I shall came to it in order, if I may. There is no interest for the first year, but on the deposit of the encashable certificate, under this scheme, the interest is back-dated to the previous 5th April. If the tax year ends on 5th April, even if we have computers to calculate P.A.Y.E. on a centralised basis, there is bound to be a delay of three or four weeks before the encashable certificate is issued to the employee. It would be unfair if, for that one month—it might be five weeks—the employee did not receive interest. I suggest in the new Clause that the interest should be back dated to the previous 5th April. That means that for one whole year the taxpayer does not have any interest on the £1 a week or whatever it may be that he has been saving each week. There must be some compensation for that.
I hope I shall not be ruled out of order on this occasion. The new Clause I put down in Committee was ruled out of order because it would have made a charge on some fund or other, and, therefore, although I consider that the Post Office Savings Bank rate of interest should be 4 per cent., I have accepted the current rate of Post Office interest for the purpose of my new Clause on this occasion and I provide that the rate of interest should be that ruling at the time for Post Office savings.
I entirely take the point that Post Office interest at 2½ per cent, is too low to be attractive. Because savers would 1183 not receive any interest for the first year, I suggest that, in order to give some compensation to them, the rate should be increased from 2½ per cent. I realise that the 2½ per cent. on a Post Office Savings Bank deposit is not merely a rate of interest. The Post Office says that it gives banking facilities. One can go to a post office in any town in the country and draw out £3, and, in a sense, one is getting banking facilities. If one banks with a trustee savings bank one can not only draw money out but can buy cheques and pay one's bills that way. In a sense, I suppose that the Post Office offers banking facilities, but it is stretching the argument to say so, because the facilities given to the general public are extremely meagre, except the convenience of being able to draw out £3 at any post office.
I hope that the Government have in mind—I am sure they have—the advent of paying wages by cheque. I am sure that will come. Every Friday's payroll robbery adds weight to the necessity for paying wages by cheque. The Act recently passed will mean that people will come out of the Post Office; they will not be using the Post Office facilities, valuable as they may be. I would agree with the hon. Member for Gloucester (Mr. Diamond) when he says that we must have some extra fiscal incentive. I am sorry to put words in his mouth, for he did not actually say that; but I am sure that that is what he meant.
I suggest a £24 exemption from taxation. My reason for that exemption was that the original Post Office Savings Bank interest of 2½ per cent. in six years gave an exemption of £15, and if the Post Office rate of interest went up to 4 per cent. it would give up to £24 exemption.
It has been suggested to me that this would activate against other savings schemes. I do not take this point, because the scheme I am advocating is not at all in the position of any other savings scheme, because if it were successful, every April or May in any year we should have millions of savings in encashable certificates in people's hands. Then it would be for private enterprise to advertise suitably to attract those savings, whether wider share 1184 ownership—and I am glad that my hon. Friend the Member for Halifax (Mr. Maurice Macmillan) supports my Clause—or life assurance—I am glad that my hon. Friend the Member for Bradford, West (Mr. Tiley) supports my Clause—or unit trusts. It does not matter what sort of private enterprise savings it may be. Private enterprise must then make the approach to the employees in the April or May of any year. It is much easier to persuade a man to invest if he has money in his hand, than it is to persuade him to invest by mortgaging a future part of his income.
I hope that the House and Ministers will agree with me that it is absolutely true to say that it is necessary for this country to save more and more money. P.A.Y.E. is a channel of savings, a regulating machinery. We must, of course, eradicate the manual work involved. It has been said that the psychological effect on the employee would be bad. I do not think so. If that were so, so many of the industrial savings schemes we have today would not be so successful as they are. I think, though, that the Government must give a lead in savings. It is essential to tell the population how desperately urgent it is for us to cut down on consumer demand. I think that this scheme would certainly increase the credit-worthiness of this country.
I am sure that I should be ruled out of order if I were to talk about other methods of achieving credit-worthiness, but I hope that the Chancellor will look at this proposal sympathetically, and that he will modernise the Revenue through machines, computers and so on.
It is said, and in some parts of the House it is said quite facetiously, that we have never had it so good. We have not, and in some cases we have had it too good. It is essential that we should save now and have it better in the future. If we could save and take £300 million, £400 million or £500 million out of consumer demand, it would transform our whole economy. This is an admirable way to channel savings and make saving convenient. Although quite obviously my right hon. and learned Friend could not introduce it this year, I should like him to set his experts to work on this. I am sure, despite what Treasury officials may say, that the Administrative difficulties are not 1185 insuperable. We must increase our savings. Even if the difficulties are there, we can overcome them and make sure that the Government give a lead towards new prosperity.
§ Mr. Diamond
The House owes it to the hon. Member for Nottingham, South (Mr. W. Clark) to say that the scheme which he has put forward seems on the face of it most interesting and to congratulate him on the clarity with which he has explained it and the interest which he has secured in the House for this suggestion. As far as I can see, nobody would disagree with the desire to encourage savings and particularly to make it easier to save regularly for those who have not necessarily a large amount to save. In that sense I could not agree more with the hon. Member that this would not conflict with existing schemes but rather, as he says, appeal to those potential savers who are not at the moment saving in industrial schemes because the machinery involved is too cumbersome for the small sums concerned.
I find these all attractive propositions. There is the fact that the saver can feel that he is completely free to save if he wants to—and good luck to him if he does—and if he does not is free to change his mind. Administratively, the scheme could be worked extraordinarily economically. The hon. Member is concerned to save the Inland Revenue work, but he must not forget that when P.A.Y.E. was introduced all employers objected strongly because the work was put on the employers to do the business of collecting tax. As far as I am concerned, whether it is a civil servant or not a civil servant who does the work does not matter a great deal as long as no additional work is involved.
I should have thought that with this method, whether it is put on the Inland Revenue or the employer, the work involved in collecting savings is less than under the present industrial schemes. Therefore this seems to me something to which the Government should give a sympathetic hearing. If a saver decides to change his mind and wants to have himself put back on his ordinary code, then automatically that very week he gets back from the firm all the savings accumulated in his name. There is no trouble of any kind. I should have 1186 thought that that was a great point in favour of the scheme.
I should have thought that the hon. Member would not stick precisely to every detail. There might be opportunity to discuss, for example, the rate of interest and what part of the interest should escape taxation. At present it is £15 and one can see reasons for keeping it at that figure notwithstanding the logic of the hon. Member's argument for £24 or, as on the Order Paper, £25. I also imagine that some care would have to be given to the question of the security of the savings of the employee while they are in the hands of the employer and before they have been transmitted to the Revenue. That matter of security would require some attention. Subject to those minor points, I should have thought that the scheme ought to receive very sympathetic consideration indeed.
I should be very pleased if at the end of this the Government were able to tack on an arrangement whereby the Post Office could operate a Post Office unit trust. Having agreed with the hon. Gentleman so far, I do not want to find a bone of contention with him, but he has been concentrating on a private enterprise savings scheme. I should be pleased if the Post Office could devise a unit trust scheme so that a saver could come along and say "I have £50. I do not know what to invest it in or how to go about it, but I understand that you have a unit trust in which this investment could be usefully and satisfactorily spread. Here is the £50. Please give me a unit certificate for that amount." That would be a satisfactory corollary to the scheme suggested by the hon. Gentleman which in itself is well worth considering.
§ Mr. John Farr (Harborough)
I support my hon. Friend the Member for Nottingham, South (Mr. W. Clark). The scheme commends itself to me for three main reasons.
The first reason is that the whole plan is so simple and understandable to the ordinary person. Two or three times last week people came to me in my constituency and spoke about it. They were ordinary people, and they understood it. In a scheme of this nature simplicity is absolutely essential 1187 if we are to command the confidence of the ordinary men and women whose savings we hope to attract by the scheme.
The second reason is that it is not only easy to understand but easy to operate. It makes saving very easy indeed, and far simpler than it is at the moment. If we want savings to flourish these days when people's time is so short and there are so many preoccupations, we must make it easier to save. The average person in his precious leisure has to keep up to date with his hire-purchase payments, and get his various licences—for dogs, radio and television sets, cars or motor cycles—and if we can make it easier for him to save by simply having his code number adjusted I think we shall go a long way in promoting national savings. If we adopt the scheme it will exchange the weekly visit to the Post Office when a person wants to buy two or three savings stamps for perhaps an annual visit when the annual savings certificate received from the P.A.Y.E. office is exchanged.
Another reason is that putting the scheme over to the public will not entail a vast crescendo of publicity, which has been the case with so many of our savings schemes in the past. National savings schemes have had to be advertised considerably. Much of the savings achieved through premium bonds has had to be spent on advertising. There will be no need to invest in "Ernies". I understand that a slip will be put in everybody's pay packet once a year, and it will explain briefly and simply what has to be done to S.A.Y.E.—save-as-you-earn—and perhaps an annual reminder will also be put in pay packets.
Whether this is a point which will lead to harmony in the home I do not know, because when the husband comes home at the end of each week and hands over the kitty to his wife, she may say, "Surely you are earning more than this," and he will only be able to pass over to her his pay slip, with the appropriate code number shown thereon. My right hon. and learned Friend may therefore think it necessary to introduce a simple guide to the understanding of code numbers for housewives in the home.
The only possible objection which I have heard about this scheme when talking about it to several people outside the 1188 House, particularly one or two employed by the Inland Revenue Office, is that it is not the duty of that office to encourage people to save. We all know that only too well; that office carries out only too efficiently its present duty of extracting money from those who have been able to save, and I consider that the extra work of adjusting code numbers appropriately would be carried out most efficiently by the authorities. It may be outside the scope of their duties, but it is also outside the scope of my duties when, every weekend, I have to go home and act as an unpaid tax collector for the Inland Revenue Office.
I conclude by emphasising what my hon. Friend has said: against the sombre picture of our national economy today it is more important than ever that every method of saving should be explored, even if it adds only a few million, and does not reach the total of £170 million annually that my hon. Friend envisages. I ask my right hon. and learned Friend not merely to say that he will look at the matter later and probably consider it in two or three years' time, but to agree to act now, in view of the essential difference that a few extra million pounds saved annually could make to our economy.
§ Mr. Houghton
What a pity it is that some of the most interesting debates come in the middle of the night. When I think of the time we spent earlier on on the question of wine vinegar it makes me realise how much more interesting it would have been to have discussed this ingenious scheme for voluntary deductions from pay—for that is what this Clause is. It is a proposal to require employers to operate a scheme of voluntary savings by deductions from pay, and the hon. Member for Nottingham, South (Mr. W. Clark) has outlined his idea how it could be done, both in principle and as to the machinery which should be employed.
Of the value of deductions from pay there can be no question. Indeed, pay-as-you-earn rests upon the facility, the efficiency and the acceptance of deductions from pay. I am sure that no hon. Member would deny that without pay-as-you-earn our system of direct taxation of wages and salaries would have broken down long ago. It simply would 1189 have been impossible to collect the money in the old way, by two instalments, or even four—as there used to be years ago, in respect of manual wage earners. I venture to suggest that the courts of summary jurisdiction would be choked with cases awaiting a hearing if we were collecting money payable under Schedule E under the old method of direct payment to the Collector of Taxes.
The Chancellor will be the very last person to underrate the value of deductions from pay as a means of collecting money which would otherwise be in amonnts too large to make it easy for people to pay all at once.
This method of deductions from pay has proved most attractive to insurance companies, sports associations and National Savings societies. Some bodies are prepared to pay quite substantially for the privilege of having premiums and other payments deducted from the pay packets so valuable a method is it of collecting payments of that kind. I should think that the public service has probably got the longest catalogue of deductions from pay covering Income Tax, National Savings, Civil Service Sports Association, insurance premiums and so on.
We on this side of the House were always grateful to Mr. Speaker Morrison for agreeing to deductions from pay of the contributions to the Parliamentary Labour Party Benevolent Fund, the contributions to which are £5 a year. When Mr. Speaker Morrison gave permission for deductions from pay we knew that we should never look back. That has proved a most efficient way of collecting money and made it possible to collect almost 100 per cent. from hon. Members on this side of the House. We on these benches appreciate the value of deductions from pay.—I think there is no reason to doubt that.
The next question is, how shall it be done? What agency shall be employed? Here opinions may differ and there may be other ideas. The hon. Member for Nottingham, South is to be congratulated on being so full of ideas and working out many of them so carefully. He suggested that the pay-as-you-earn method should be used. I was pleased to hear the hon. Member for Harborough (Mr. Farr) say that Inland 1190 Revenue officials had told him that they felt it their duty to help people to save.
§ Mr. Houghton
I beg the hon. Member's pardon. I was listening carefully and I thought he said that they considered it their duty to assist people to save. I should not have disagreed with him if he had said that. It would show a high sense of duty and most of them have got that, but, since the hon. Member did not say that, I shall not pursue the point. I apologise for having misheard him.
The hon. Member for Nottingham, South wishes the whole apparatus of pay-as-you-earn to be employed. I shall not take up the time of the House at this hour in going into the administrative detail and the administrative difficulties of that. I fear that they are far greater than the hon. Member suggested, even greater, I regret to say, than my hon. Friend the Member for Gloucester (Mr. Diamond) appeared to suggest. It would be absolutely necessary for the Inland Revenue to inform the employer of any change of code number. The contract between the taxpayer or saver and the pay-as-you-earn system would have to be a contract between him and the Inland Revenue because the Inland Revenue must supervise the employer in the deductions he makes or the repayments of the deductions he makes. It would not be fixed up privately between the saver and his employer if it were to be taken into the system of Income Tax deductions under pay-as-you-earn.
That is an important point. It would not be possible for a saver to get his money back merely by notifying his employer that he was to change his code number; it would have to be done through the agency of the Inland Revenue so that it would know at the end of the year exactly what he was accountable for.
I do not want to become too heavily involved in the detail but I wanted to give an illustration of some of the difficulties which we are bound to encounter. It is no good pretending that it would not mean more work for the employer. If an employer with 10,000 workers had 5,000 changes of code number a week he would soon state whether there was 1191 more work. Every time a change of code number is notified, some clerical or other operations are involved. This proposal would therefore have to be discussed with the employers' organisations. I do not think that it would be quite necessary to discuss it with the trade unions, although obviously consultations with them would be desirable, because the extra burden would fall on the employers, and already we hear a great deal from them about their unpaid labour as tax collectors and collectors of the graduated National Insurance contributions.
The staff of the Inland Revenue would not like the proposal a bit. They never do; if there is any extra work to fall on them, there is usually a good deal said about it in the Inland Revenue. As hon. Members know, they are already overworked. They are the most harassed body of civil servants in the land, and they want no more of it than they can possibly help. All these things have to be accommodated within the scope of the resources of administration, and if the House decided that it should be done in this way, it would make the necessary provision for it to be done.
I do not wish to pour cold water on this idea. When I was first asked about it and when the hon. Member first put the new Clause on the Order Paper, I said that I was attracted to the idea, and we on these benches give it our general blessing and hope that the Chancellor will consider a scheme of this kind.
Whether it is desirable to get it mixed up with Income Tax is a matter for considerable argument. Would it prejudice the scheme to have it mixed up with Income Tax deductions, which are not all that popular? Employees might think that there was some catch in it. They might ask, "Is there to be another postwar credit at the end of the story? Will the Chancellor hang on to the money and say that we cannot have it until the economic situation permits?" The hon. Member made it crystal clear, as far as he could, that there would be no such thing. All I say is that we must not overlook the possible disadvantage to the scheme if we mix it up with Income Tax.
It could be that a scheme for voluntary deductions from pay for saving 1192 could be operated apart from Income Tax. In some respects it might be simpler, because at least it would enable a worker to specify in terms of money how much he would like deducted from his pay packet, whereas by having to use this P.A.Y.E. system he has this little involved calculation: if he reduces his code number by two or three points, how much money will that mean, or if he wants to contribute so much money, what does that mean in terms of code number? The hon. Member is assuming that the workers understand this as clearly as he does, but there is much confusion and difficulty about these deductions from pay under P.A.Y.E. We must be careful not to prejudice both systems by bringing them together.
I raise these points in a constructive way, at the same time giving general encouragement to the idea. There is no doubt—and this clinches the matter from our point of view on the Opposition benches—that if this system could be applied in some form or another, more savings would result. I am convinced of that. It is possible to persuade people to sign an authority for deductions for worthy causes of this kind and they will stick to them, whereas if people go round week by week trying to collect it is by no means so easy. We do not necessarily commit ourselves to the use of pay-as-you-earn or, if pay-as-you-earn is used, to the precise type of scheme which the hon. Gentleman has in mind, but we are certainly of opinion that, having regard to the need for facilitating personal savings, we should encourage the Chancellor to consider any idea which offers possibilities of an efficient and acceptable scheme, which we are sure would bring him much more in savings than all the efforts which have been made so far.
§ Mr. Arthur Tiley (Bradford, West)
I want to give my hon. Friend the Member for Nottingham, South (Mr. W. Clark) vocal as well as moral support. It is refreshing and a great thrill for a Member on either side of the House to launch a new idea, even at 12.30 a.m. My hon. Friend must sustain himself over the next few years by the example of the hon. Member for Sowerby (Mr. Houghton), who told us recently that for fifteen years he had proposed ideas at the Dispatch Box and was yet hopeful of being successful. I hope that it will 1193 not be fifteen years before this idea is adopted.
We are grateful for the massive amount of time my hon. Friend has also grateful to him for the clear way in which he expressed it to us. Successive Tory Chancellors have been able to compliment the savings movement year by year on the greater savings which have been made. Then the Front Bench leaves it there. In these days when great pressures are being made on people to spend their earnings in so many ways, it is essential that the saving movement should be revived each year, just as many methods of saving in private enterprise are revived by new ideas. We should not leave it to stew in its own juice and just hope for the best. This could revolutionise savings.
When this scheme was first mentioned in the Press, it caused a good deal of comment in the West Riding. Many young people were interested in it. We should make an especial effort to encourage saving amongst young people. They are invariably left out of pension schemes in their firms until they are aged 21. Whatever may be said about the present wage levels, they have vastly increased since I was 18. A greater attack is being made on the earnings of the young than is being made on the earnings of people of mature age.
This scheme would attract many young people into the savings movement for the first time. We should benefit for the rest of the century. As the hon. Member for Sowerby said, it must be made clear to whoever comes into the scheme that they control the money. People resent all the deductions which are made from their wages, whether they are by way of contributions to private schemes or for tax purposes. A good deal of propaganda would be necessary at the inception of the scheme so that people knew that they controlled the money. I hope that my right hon. and learned Friend will consider this scheme. I hope that we shall be able to launch a scheme of this sort next year, because my hon. Friend the Member for Nottingham, South does not deserve to be fobbed off with some sympathetic soft noises from the Front Bench.
§ Sir E. Boyle
I join in the congratulations which have been expressed to my hon. Friend the Member for Nottingham, South (Mr. W. Clark) on his extremely thoughtful speech on a subject to which he had obviously given a very great deal of attention. I first heard that speech in a somewhat shorter form nearly six years ago at the party conference. I was very glad to hear it again tonight. The whole House will particularly have welcomed hearing a new subject in these debates, because it is no offence to anybody to say that the same repertory of topics—tin mining; personal allowances; Easter offerings, until this year—tend to occur again and again.
§ Sir E. Boyle
We have had plenty of that. We therefore have all the more reason to welcome the imaginative and interesting approach of my hon. Friend. My hon. Friend is absolutely right in the importance which he and his hon. Friends have attached to the subject of encouraging savings. It is absolutely true that while on the one hand, in the out-turn, as Lord Keynes said a quarter of a century ago, savings and investment must balance, on the other hand it is also true that unless decisions to save match decisions to invest, we are faced with the twin problems of excess demand, a balance of payments problem and a fall in the value of money.
As my hon. Friend said, quite rightly, it is no paradox to say that on the one hand we believe in prosperity but, equally, we attach real importance to savings. If we could save a slightly bigger proportion of income and plough it back, as it were, into investment at home—and investment abroad—in the long run the improvement in the living standards of people would be very considerable.
I would make only one or two more very general comments. I think that my hon. Friend's example of tobacco was not the very best that he could have chosen. I think I am right in saying that if one looks back to the days of 1947, when the tobacco duty was drastically increased, it was then advocated by Ministers, partly on the ground that it would directly save imports and help the balance of payments. I do not think that it had those effects, but the disinflationary effect of a really sharp increase 1195 in the duty was very great. However, I certainly agree with a good deal of what my hon. Friend said.
This interesting Clause would allow any employee from the current tax year onwards to have his P.A.Y.E. code number reduced so as to increase the tax deducted from his earnings. As I understand my hon. Friend's proposal, the employee could at any time revert to his true code number. After the end of the year, the Revenue would issue a certificate of the tax overpaid, which would be encashable at any post office, but if instead of being drawn it was deposited in the Post Office Savings Bank it would earn the current rate of interest from the preceding April, and the first £25 of interest would be free of tax. The maximum saving in any one year would be 10 per cent. of the gross income, or £100, whichever was the less.
The hon. Member for Sowerby (Mr. Houghton) said, quite rightly, that the intent of the scheme was to encourage direct, voluntary savings from earnings. I rather agree with him that it is a matter for consideration. It is one on which this House should not take too easy a view; namely, whether it is a good thing for this voluntary deduction from earnings to be directly connected with the tax machine. I will not add to what the hon. Gentleman said—he put his remarks fairly and moderately—but we must all ponder the point whether, psychologically, that is a good thing.
I must say to my hon. Friend that the more direct point is that the purely administrative difficulties of what he proposes would be very considerable, whether one considers employers, employees or the Inland Revenue. I do not want to speak at length, but I will say a word about each of those three categories of people in turn.
Do not ever let us forget that the employers already carry a pretty substantial burden through the operation of P.A.Y.E., and, more recently, through the new graduated National Insurance Scheme, and I think that they would almost certainly be very reluctant to take on extra work. I shall not develop that point, but one is bound to admit that a time when we have just brought in a graduated insurance scheme would be a very difficult time for employers to taken on quite considerable new 1196 administrative work. Nor must we think too much just in terms of the big companies. There are, of course, many big companies that could manage the extra work without difficulty. It would be a very different thing for a good many of the smaller ones.
Let us look now at the position from the point of view of the employee. I am not quite sure whether, in practice, this scheme would be easy from his point of view. He would often be unable to predict the amount to be saved by a given change of coding, because it would depend on the level of earnings and marginal rate of tax. Only the more sophisticated workers would, perhaps, understand how it works. There might also be difficulties and confusion for the employee when his code number changes in the normal course of the year for taxation reasons. I think that to these difficulties of predicting in advance the effects of coding changes might be added the difficulties of enforcing the limits that my hon. Friend the Member for Nottingham, South has in mind.
Further, I have a feeling that to introduce a scheme in any way like that proposed by my hon. Friend would cost the Exchequer a certain amount of money. I will not dogmatise about that, but I think that that would be so at the end of the day. The hon. Gentleman the Member for Sowerby made the point that the scheme would result in extra work for the Inland Revenue. I am being only realistic in saying that it would require as much as several thousand extra staff.
Income tax is an annual tax and the P.A.Y.E. system runs on an annual basis. Employers send in their returns to the Revenue at the end of each tax year and then, of course, as quickly as possible, assessments are made. Since over 22 million persons are coming within the P.A.Y.E. machine, the sorting out of information after the end of the year and the checking of liabilities is already a big job and in some cases it is not completed for some time after the end of the year.
As I understand the intention of the proposed new Clause, it is that before the annual returns have been processed for tax purposes, a calculation would have to be done in each case to ascertain 1197 the tax that would have been deducted under the code number given to an employee by the Revenue. All that, of course, would involve a good deal of extra work.
§ Mr. Diamond
The hon. Gentleman seems to be approaching this matter from one side only and is not considering the benefit of the savings. Can he give an idea of a comparable number of man-hours—never mind which men—for a saving of the sort of money possible under this scheme and the savings possible from any other scheme?
§ Sir E. Boyle
I could not make such a calculation on the spur of the moment. Any such calculation would not have very much value. I do not in any way want to pour cold water on the proposal under discussion, because my hon. Friend the Member for Nottingham, South has put before the House tonight a thoughtful scheme, and whenever that happens it is, I am sure, the wish of hon. Members that it should be acknowledged.
Before the Government could commit themselves to this principle we should think carefully indeed about the administrative implications involved. We should have to consider the possibility of getting considerable extra savings and not just getting a switch of savings. We should have to consider exactly how the scheme appears in the eyes of both employers and employees, for whom the scheme is principally devised.
I can assure hon. Members that my right hon. Friend the Chancellor fully agrees with the importance of trying to find new ways of encouraging voluntary saving in such a manner as not to put a great burden on the Exchequer. The Budget of my right hon. Friend the Prime Minister in 1956 devised a number of new ideas—not only premium bonds—and the present Chancellor would certainly wish to respond to the initiative of my hon. Friend the Member for Nottingham, South by giving an undertaking to have a good look, between now and his next Budget, at all the possibilities that present themselves in this field.
I would not wish to say any more about my hon. Friend's proposal, but I hope that following the general undertaking that I have given he might be ready to withdraw his Clause.
Mr. H. Wilson
May I put a question arising out of some words that the Financial Secretary used, which might give rise to misunderstanding? I think it was an ambiguity and possibly a slip on his part. Since the Chancellor is going to look at this matter between now and next year, it is desirable that the Financial Secretary should clear up what he said lest there be a considerable number of hopes raised unjustifiably. As I heard the hon. Gentleman, he said that part of such a scheme would involve at the end of the Income Tax year, early in April, a certificate being issued showing the total amount deducted in the course of the year, that certificate then being paid into the Post Office Savings Bank and attracting interest at whatever is the standard rate—at present it is 2½ per cent.—retrospectively to the preceding 5th April.
It will be clear, I think, that if that were done literally in those terms it would be a very generous rate of interest indeed, because the amount of money accumulated by the end of the year, on the assumption of equal deductions over a period of time, would not justify the payment of the whole rate of 2½ per cent. on all of them back to the previous 5th April.
I take it that the hon. Gentleman meant—and certainly I think the hon. Member for Nottingham, South (Mr. W. Clark) made this clear—that it would not be the whole amount that would carry this rate of interest.
§ Mr. W. Clark
If the right hon. Gentleman reads the proposed Clause he will see that at the end of the fiscal year the Commissioners of Inland Revenue will issue an encashable certificate. Then the Clause goes on to say that interest accumulates from the preceding 6th April. But the certificate cannot be issued until after the end of the fiscal year, which is 5th April. So if it is issued seven days later—that is. 12th April—interest is back-dated to 5th April and the certificate will earn only seven days' interest.
I am grateful to the hon. Gentleman. Interest, in fact, proceeds only from the date of the end of the financial year and not from the beginning of the previous financial year, if I understand the hon. Gentleman correctly. I am glad that the hon. 1199 Gentleman cleared the point up because I think there might have been that misunderstanding.
§ Sir E. Boyle
If I may have the leave of the House to speak again, since the right hon. Gentleman mentioned me, I was simply endeavouring to give what I hope was an accurate account of my hon. Friend's intention, and I am very glad that my hon. Friend has further cleared the matter up by giving in his own words what he intended by this Clause.
§ Mr. W. Clark
In view of the undertaking given by my hon. Friend, I beg to ask leave to withdraw the Motion.
§ Motion and Clause, by leave, withdrawn.