HC Deb 15 May 1963 vol 677 cc1491-504
Mr. John Diamond (Gloucester)

I beg to move, in page 11, line 24, to leave out from "effect" to "as".

The Deputy-Chairman

I suggest that with this Amendment we can discuss the following two Amendments, in page 11, line 37, at end insert: and by the addition at the end of the proviso of the following words, that is to say— 'or which the child earns during the year of assessment in which the child leaves school'", and in line 41, at end add: (2) Subsection (9) of the last foregoing section shall apply in relation to this section as it applies in relation to that section.

Mr. Diamond

The first thing I want to do is to thank all those hon. Members opposite, none of whom, I am sure, was proposing to leave the Chamber, for being good enough to have stayed this length of time to give us their support on this group of Amendments, which are the kind of Amendments that they have supported in previous years. That was obviously the reason why they wished to stay in such adequate numbers, in even greater numbers than the Liberal Party at the moment seems to have produced, in support of these Amendments.

Before I can explain an Amendment to a Clause which has not been effectively discussed before, I am bound to say a word or two, obviously very shortly at this early hour of the morning, about the purpose of the Clause itself. The Clause is quite simply described in one sentence as a tapering Clause, the kind of Clause which has been pressed time and time again, a tapering Clause in relation to the income of the child which might or might not affect the allowance given to the parent who maintains that child.

This, as I say, is a Clause which we have moved time and time again from this side of the Committee, and, of course, we have been on excellent ground in moving it, because it was about nine years ago—no less—that the Royal Commission reported in favour of a tapering provision precisely of this kind. I suppose that I should congratulate the party opposite on the unusual speed with which it has got a provision of this kind into the Bill after such a short period as nine years since it was established to everybody's satisfaction that it should be done.

I am now able to turn to the Amendments. There are three Amendments which you, Sir Robert, have been good enough to suggest should be discussed together. The words of the first Amendment disguise the simple effect of it. The Amendment, quite simply, provides that instead of the benefit of this tapering Clause coming into effect next year, it shall come into effect this year. What is wrong with a simple suggestion of that kind, and is it not obvious that every hon. Member opposite, and probably some right hon. Members opposite, would wish to support us in such a simple Amendment'? There is a very good reason why this Amendment should be adopted, a very good reason for the sake of parents who, at the moment, are suffering the obvious inequity—the admitted inequity and something admitted to be inequitable by the Government in previous debates—of losing a complete child allowance because the child has an income of £1, or even £2, above the required maximum.

Is it not wrong that this inequity should continue any longer than necessary? I ask every father and mother opposite why they should not help us in this matter. I can produce, of course, some very good arguments in support of this Amendment in addition to what I have said already. The first argument in favour of it is that no argument against it has been put forward.

During the course of his Second Reading speech the Financial Secretary referred to some problem of administrative difficulty. I doubt whether the Financial Secretary fully understood the suggestion being made in his own Bill. There is no administrative difficulty added, as I hope to demonstrate, and I am not the only person who takes this view. The hon. Gentleman has no doubt received, as we all have received, the paper put out by the Association of Certified and Corporate Accountants. Not belonging to that body, it is possible for me to pay a tribute to it and to say whan an excellent document it is, and also to refer to its first recommendation with regard to Clause 13.

It says: The Council wishes to draw attention to the fact that in general the income of a child will not be known until the end of the fiscal year, so that in the great majority of cases the new child allowances will always have to be allowed restrospectively. It recommends, therefore, that the Bill should be amended to give effect to this relief as from 1963–64. I do not know whether I can go quite as far as is suggested here, but the point is made, and perhaps the Government have not been sufficiently aware of it, that there will not be much additional administrative inconvenience as a result of this tapering Clause, and there is, therefore, nothing like sufficient justification for postponing the benefit of it for a whole year.

12.15 a.m.

There is no reason why it should not be introduced at once. It is something which both sides of the Committee regard as well overdue. It was supported by the Royal Commission years ago, We have pressed it from this side several times. It is in the Finance Bill. My first point, therefore, is that we should adopt the first Amendment so as to give the benefit of this relief straight away.

If the Government are obstinate and they insist upon leaving it for next year, then I ask: why is the Clause in the Bill at all? Why is it suddenly thought, at this stage in our electoral fortunes, that it is right to introduce into an annual Finance Bill a provision which has no relevance whatever in its present form to the current year but which has relevance only to a future year? It is completely against the general pattern—though there are exceptions—which is to provide in each year's Finance Bill only for the alterations which will have effect in that year. Why bring it in a year ahead?

There have been other occasions when the Government have thought it right to give notice to the public of benefits which are to be introduced, if they remain in power, a year or two years ahead. This is not the way to fulfil the responsibilities of the Treasury in the Finance Bill. It should either be an annual Bill or become something entirely different, a five-year Budget or something like that. If we have to have annual Finance Bills, they should deal with variations in the law having effect for each year. It would, therefore, he sensible to adopt the first Amendment and let it be a provision which has effect when the Bill comes into operation.

If the Government will not do that, they should withdraw the whole Clause or give us an absolutley satisfactory ex- planation of why at this particular awkward electoral time, they propose to give advance information of the way in which their minds are turning on the subject of Income Tax allowances and reliefs.

The second Amendment, unlike many others, has the merit that, happily, it combines justice with administrative convenience. Usually, we face the problem that what we should like to do for administrative convenience does not coincide with justice; but in this case it does. This proposal has been pressed from this side before, the last occasion being only last year, I think.

The Amendment would do away with the awkward situation which arises in the one year in which a child allowance ceases because the child is no longer dependent but, as it were, stands on its own feet, that is, the child leaves school or other educational establishment and starts to earn, and, during the year in which it is earning, earns a small amount. One cannot say precisely how much the child will earn.

I use the word "earn" because, as the Committee will have noted, this Amendment refers to earned income. It does not refer to investment income. Investment income is likely to be fairly stable and well known a year in advance. It is likely, therefore, to cause no administrative problem. What causes the problem is the uncertainty of the amount which the child is likely to earn in its first year after leaving its educational establishment.

The amount of administrative difficulty involved in the present circumstances must be considerable. Either the allowance is immediately withdrawn from the parent by the Inland Revenue at the start of the year, generally in a P.A.Y.E. coding, causing anxiety, annoyance and irritation to the taxpayer, which nobody wants because, as far as possible, one desires the machine to run smoothly, the allowance being withdrawn at the start of the year in the belief by the Inland Revenue that during the period the child will earn a certain amount; or the allowance is left and, therefore, if the child earns too much, there is the slight problem of having to make adjustment at the end of the year for the further amount which has to be paid and which is generally added on to future years.

It could be simply avoided by ignoring, in the first year of assessment, what the child earns. This is not a new departure. It is not a move away from tax purity, nor it is one that is not supported by the merits of the argument. As everybody knows, in the first year in which a child is affected in this way, the parent is put to quiet unusual and non-recurrent expenditure by way of different clothes and a number of items. It is reasonable, therefore, that the parent should not be prejudiced as to the child allowance, in this first year only, having regard to the fact that the parent is being put to unusual and non-recurrent expenditure. It is, therefore, both right and administratively extremely convenient if one could forget for this one year only such small income as the child earns during its first year.

I repeat, this is not a novel departure. On many occasions, in many aspects of our taxation system, the Inland Revenue deals with rough justice with regard to opening and closing years either of the life of an individual or of a variety of personal allowances or businesses, and so on. There is always the problem of how to treat a person who did not exist at the beginning of the financial year but does exist at the end of the year, or vice versa. By and large, the Revenue deals with the matter, if at all other than completely equitably, slightly generously. Therefore, this would not be departing from that tradition in any sense that there should be, if it is thought to be at all generous, a slight touch of generosity in the attitude of the Inland Revenue in regard to just this one year by ignoring the income of the child for the purpose of granting the child allowance.

If this method were to be adopted, as I very much hope it will be, there could be no argument against adopting the first of the three Amendments and bringing in immediately the benefit which, I am sure, the Chancellor wants to bring in this year; because if one does not have the problem of recalculating the child allowance, because the income is to be ignored in the first year, we would do away with any possible argument, in particular the argument advanced by the Financial Secretary on Second Reading, that the Clause could not be brought in immediately because of the administrative dfficulties.

The third Amendment needs the minimum of explanation, even to those hon. Members who still remain awake at this late hour. It is a repetition of what happens in an earlier Clause in the Government's Bill and is merely to provide for the fact that provisional collection under P.A.Y.E. will not be effective; there will be an adjustment in due course, and this is quite normal in our pay-as-you-earn arrangements. So I feel that that is simply dealt with as a consequential Amendment.

As I have said, here are three Amendments which hang nicely together and which have the effect of bringing into existence the wishes of the Government and, I am sure, of its supporters immediately instead of next year. They make the whole matter simple and just, and are typical of the kind of Amendments which the Opposition move.

Mr. Barber

These three Amendments challenge the whole basis of Clause 13, both the principle involved in the Clause and also the timing of its operation. I do not think that I need go over again the way in which the Clause is intended to work, because it was made clear by my right hon. Friend in his Budget speech and I touched upon it during the Second Reading debate, and I think that most hon. Members understand it.

It is perfectly true, as the hon. Member for Gloucester (Mr. Diamond) said, that proposals that the child allowance should be tapered on these lines or similar lines have been made on a number of occasions in the past. There is, however, a considerable difficulty, one with which my right hon. Friend was faced on this occasion and one which is very relevant to the first Amendment. It arises because P.A.Y.E. works smoothly only when the code number given to an employee before the beginning of the tax year to which it applies accurately reflects the allowances to which he is entitled for the year.

With a tapered child allowance, depending on the amount by which the child income exceeds the prescribed limit, it will be necessary for the tax office to estimate in advance what the excess income will be, and in many cases where the estimate turns out to be incorrect, as the hon. Gentleman pointed out, an assessment will have to be made on the child's parent after the end of the year, with further work in repaying any tax overpaid or in recovering any tax underpaid on the basis of the original coding.

Earlier examinations of the problem, as pointed out in similar discussions in past years, led us to the conclusion that the extra work would require the equivalent of an additional 450 staff, and the view was taken in past years that an administrative cost of this order would not be justified. The matter was discussed at considerable length during the Committee stage of the Finance Bill last year, and it was agreed that we should look at the matter once again.

Now the whole matter has been reexamined, and the Inland Revenue has reached the conclusion that provided—this is most important—that necessary preparatory work can be done before the Income Tax year in which the new arrangements come into force, the extra staff required would amount to about 275 compared with the 450 which would otherwise be required. Even this cost in terms of staff is appreciable, but my right hon. Friend has decided that it is one which ought to be borne in view of the strength of the case in principle for some form of tapering arrangement.

The earlier estimate of the extra staff requirement of approximately 450 related to the work burden which would arise if tax officers had to depend on the existing arrangements for obtaining information from taxpayers. This number of extra staff would still be required to implement the proposal for the current year, 1963–64, as the hon. Gentleman suggested in connection with the first Amendment. We propose for future years to ease the work by introducing special arrangements for obtaining the necessary information from taxpayers. I do not think that I need trouble the Committee with details now.

But I should say, with respect to the hon. Member for Gloucester, and to the memorandum of the Association of Certified and Corporate Accountants, which I read today, that they are quite wrong in thinking there is no reason why we should delay the introduction of these tapering provisions until next year. I can assure them that the Chancellor, if he could possibly and reasonably have introduced these provisions to be effective for this tax year, would have done so. The easing of the work in the administration of the tapering provisions could not be secured if we introduced the scheme for this year, because the arrangements turn both on the preparation of the necessary forms and their issue to the taxpayers concerned.

12.30 a.m.

There was a further reason against bringing them into force in the current year which is quite conclusive, and I am sure that this will appeal to the hon. Member for Sowerby (Mr. Houghton) with his knowledge of these matters. The work of the P.A.Y.E. recoding to give effect to this year's changes in the personal allowances and reliefs and the abolition of Schedule A will throw an exceptionally heavy burden on the tax officers this spring and throughout the summer.

In these circumstances, it would have been a little hard to add to that considerable burden by giving effect to a scheme for tapered child allowances. The Chancellor has raised from £100 to £115 a year the income limit up to which a child ranks far the allowance. The hon. Member for Gloucester seemed to think there was something improper in including this in the Bill because the scheme is not to be operative for this financial year.

We have introduced it so that the rules will be on the Statute Book and the Inland Revenue can get ahead with the preparatory work it will have to begin in the autumn for fixing P.A.Y.E. codes for the following year, 1964–65. If it were not on the Statute Book, or there were danger that it might be reversed by a subsequent Government, the advantage of the work of the Inland Revenue in this regard would be nugatory.

The hon. Member may not have appreciated this aspect earlier because we have not had time to deploy our arguments. I hope that he will agree that, because of the difficulties inherent in the scheme—which can, to some extent, be overcome by deferring its operation—and the other burdens on the Inland Revenue, it is reasonable to defer it for a year.

The hon. Member spoke of an alternative scheme to the tapering one proposed by the Chancellor. The second Amendment proposes that a child's earnings during the income tax year in which he leaves school should be ignored in testing whether his income exceeds the statutory limit above which a claim to child allowance is inadmissible.

Mr. Mitchison

It is not an alternative, but an addition.

Mr. Barber

Whether it is an alternative or an addition is not really relevant to my argument.

In my view, this would really not he a sensible and fair scheme to adopt. It would surely not really be possible to justify treating the earnings of a child in the year in which he leaves school differently for the purpose of the income tax limit from income earned in another year—for instance, when he leaves university or works for a year after school before going on to university.

There are a number of other reasons which I will give if hon. Members want me to go into detail, but which indicate that that scheme which the hon. Member for Gloucester has proposed would not work out very fairly and would involve a considerable number of anomalies. I appreciate the point of the hon. and learned Member for Kettering (Mr. Mitchison) that he would prefer to have this scheme this year and perhaps a tapering scheme next year, or perhaps the two working together, but I cannot see that in any circumstances it would be right to have the scheme advocated by the hon. Member for Gloucester.

I hope that the Committee will accept that the scheme put forward by my right hon. Friend is the fairer and, for the reasons which I have given, that it is reasonable to defer operation for one year. If the Committee accepts this argument. I hope that it will reject the Amendments or, as I hope at this hour of the morning, that hon. Members will not press them.

Mr. William Clark (Nottingham, South)

May I press my hon. Friend on this matter of the extra staff required by the Inland Revenue in order to have tapering conditions for child allowance allowances? He said that 450 extra staff would be required if the scheme were introduced this year, but that it would take only 270 if it were introduced at the end of the fiscal year. When the annual returns come out, the annual income of the child for this year will have to be studied and it is not a matter of determining the child's income for next year. Consequently, the Inland Revenue will be in the same dilemma next year and will want as many extra staff next April as this April.

Will my hon. Friend look into the administrative side of this matter, which seems to be the only point at issue? The allowance is for the year of assessment rather than for the preceding year and I am sure that the same dilemma will arise. I agree that there would be an administrative saving if it were the previous year, but as it is the year of assessment of the annual income of the child, I doubt whether the administrative cost to the Inland Revenue would be 270 or 450 extra staff, whichever it may be.

I do not wish to detain the Committee at this late hour, but I should like my hon. Friend to look at this matter again to see whether administrative difficulty is really holding us up for one year or whether it would be possible to say that it will be given for 1963–64, but will not become effective until April, 1964, when there will be a return of tax overpaid, or a readjustment of the code number for 1964–65.

Mr. Barber

Bearing in mind the wish of my right hon. Friend that this scheme should be operative this year, we obviously looked at that aspect with the greatest possible care. Perhaps in a rather shorthand fashion, I said in answer to the hon. Member for Gloucester that a certain amount of preparatory work was being done and that we were introducing special arrangements for obtaining the necessary information, and so on. I have the full details of the arrangements and, if it is not offensive to other hon. Members, in due course I will write to my hon. Friend the Member for Nottingham, South (Mr. W. Clark) and to the hon. Member for Gloucester (Mr. Diamond) explaining in a little more detail what we propose to do by way of these forms and so on to which I referred only in passing. I think that they will be convinced that what I have said is a fair indication of how it will work out in practice.

Mr. Diamond

We are in the difficulty that both sides of the Committee obviously want to help the Government. The hon. Gentleman said that the Chancellor was anxious that this reform should have effect this current year and we are trying to help him to give effect to it in this current year. I readily accept what the Financial Secretary has said and I am sure that the details which he is to send to me will be most helpful and, in any event, most courteous.

Without wishing to return discourtesy for courtesy, I should be more happy about leaving the matter exactly as it stands were I not satisfied that the Financial Secretary has not fully understood what we have been trying to tell him, because he kept referring to the fact that the second Amendment was in some sense an alternative to the first. It is not, in the slightest degree. What it does is to meet precisely his argument about administrative convenience on the first Amendment.

If the second Amendment were accepted there would be hardly any need for additional staff for extra reviewing at the end of the year of the tapering allowance and therefore there would be no argument left—which, at the moment, is the difference between 450 people and 270 people, or whatever the figures may be.

At the moment, the hon. Member is saying that if we postpone this for one year, instead of needing 450 additional staff we shall need only 270, and that, therefore, there will be a saving. He has obviously not paid adequate attention to the second Amendment, which would reduce the necessity almost completely for any additional staff. I want to underline what the hon. Member for Nottingham, South (Mr. W. Clark) said, that in any event this is a tapering allowance. It is no longer a fixed sum, but a tapering allowance, pound for pound, and to the extent that there is a twenty shillings variation in a child's income there will be a recalculation of the child's allowance. We all recognise that this is one of the problems associated with it. But now it is in the Finance Bill. This means that every child who has an income in this neighbourhood will have to have its income calculated, and the parents' child allowance will no longer be a fixed figure but a varying one, depending on this marginal relief.

It is different from a fixed allowance, where it is possible to say well ahead whether or not there is a child allowance. I have not seen the details which the hon. Member has promised to send me, and I must not dismiss them, but I am left with the feeling that his hon. Friend the Member for Nottingham, South has clearly expressed, that the Government are putting too much stress on the argument of administrative difficulty. There will be a certain increased administrative difficulty, but this will be inevitable, and it will be due to the Clause and not to its being brought in next year.

I am surprised that the hon. Member thinks it necessary to have this kind of provision in the Finance Bill, merely to let the Revenue make a preparatory collection of information in the autumn of the given year. The Government will know what they want it for, and I dare say that the Revenue often take steps to collect information on the production of which the Government may decide, at Budget time, to make alterations in the Finance Act for the subsequent year.

We are left with the feeling that this matter is best expressed as the hon. Member for Nottingham, South, has expressed it—that the Government should consider this matter again. There is no difference in principle. We all accept the tapering principle, and we all accept the Clause. We all want it to come into effect as soon as possible—including the Chancellor—and we all want to go home as soon as possible—including the Chancellor. I leave the matter with the hon. Member, suggesting that he should consider it again. I do not propose to withdraw the Amendment, nor do I propose to press it unduly. There is nothing like a sufficient number of hon. Members opposite to stand a Division. Their lack of numbers would be obvious in any Division we call. But we shall not withdraw the Amendment, because we have made a good point, and we feel that the matter should be considered more carefully.

12.45 a.m.

Mr. Michael Shaw (Brighouse and Spenborough)

I am interested in the argument of the hon. Member for Gloucester (Mr. Diamond). But 11 cannot convince myself that the amount of work involved is affected by the terms of the second Amendment. Already, the Inland Revenue works on an assumption with regard to the amount which a child may earn during the year in which the child leaves school. That assumption may not be correct and an alteration may have to be made. But the Inland Revenue could continue to work on that assumption and no additional work would be involved.

I may be wrong, but I think that some additional work would be involved in relation to unearned income and in collating information already in the possession of the Inland Revenue. Somewhere in the records of the Inland Revenue there must be information relating to these children and it would only be a question of getting the information and relating it to whether or not an allowance was permitted to the parent. Therefore, the argument of my hon. Friend seems to be relevant and the course he proposes would seem to be the only practical one to adopt.

Mr. Mitchison

We shall find the information which the Financial Secretary is to provide very interesting. It seems to hon. Members on this side of the Committee that the information is material. We should be glad if it could be furnished in answer to a Question, or, at any rate, if a number of copies could be provided. Because we should like to consider the matter again, my hon. Friend would be willing to ask leave to withdraw the Amendment. I might add, though it is implied in what I said, that we must consider the matter again at a later stage after considering the information.

Mr. Barber

I know that the hon. and learned Member for Kettering (Mr. Mitchison) will accept from me that my right hon. Friend wished to have this new system operating this year. I must impress upon him that it was only after the most thorough examination of the administrative action involved that he decided to defer its operation for a year. If the information which I said I would produce for the hon. Members who are particularly interested has a wider interest, and as it would be inconvenient to circulate many copies and not sensible to give it in answer to a Question, I will quickly tell the hon. and learned Member now what is the information. I would not take a moment.

Mr. Mitchison

I have an alternative suggestion. We should like to consider the matter and look at what has been said during the debate, if this sort of consideration has occurred to the hon. Gentleman's right hon. Friend more than it has occurred to us. We will not press the hon. Gentleman for a number of copies of the information. We will get them done in the copying machine.

Mr. Diamond

In view of what has been said, and as I believe that the information will be forthcoming and will be most helpful, and in view, also, of the fact that it is the practice in the House—without wishing to give any indication of what will happen in future—to look more kindly on a matter which has not been pressed to a Division in Committee and that it is only due to the right hon. Gentleman that the information should be considered carefully, I beg to ask leave to withdraw the Amendment.

Amendment, by leave, withdrawn.

Clause ordered to stand part of the Bill.

To report Progress and ask leave to sit again.—[Mr. Maudling.]

Commitee report Progress; to sit again this day.