If a person proves that in the year of assessment he has paid rent for a dwelling-house in his occupation, he shall be allowed a deduction from the amount of income tax with which he is chargeable equal to tax at the standard rate on the rent so paid: Provided that—
- (a) where the rent is for a full year, no deduction shall exceed tax at the standard rate on a sum equal to one-third part of the gross rateable value of the dwelling-house or on the sum of one hundred pounds, whichever sum is the less;
- (b) where the rent is for a period of less than a year, no deduction shall exceed tax at the standard rate on such part of whichever is the less of the two said sums as bears to the whole sum the same proportion as the period bears to the year; and
- (c) for the purposes of this section no person shall be treated as in occupation of more than one dwelling-house at any one time—[Mr. Warbey.]
§ Brought up, and read the First time.
§ Mr. Warbey
I beg to move, That the Clause be read a Second time.
I want to make it perfectly clear from the outset that I do not stand rigidly by the formula set out on the Notice Paper, that I intend to argue the general principle enshrined therein and to express the hope that the Government will concede that this general principle is a reasonable one and will themselves, with all the facilities which they have at their disposal for surveying the issues involved, bring forward on Report an appropriate 1485 Clause which would do justice to the principle to ensure that householders who are called upon to pay rents which are higher than they should have to pay on any reasonable standard should receive some relief by way of a tax rebate related to the rent they pay, but with a maximum upper limit to ensure that we do not thereby be subsidising those persons who choose and can afford to live in an expensive house.
The new Clause is essentially simple; simply that there is a basic principle underlying the principle of our whole taxation system that taxation should not deprive a man or woman of the income necessary to maintain and pay for the basic necessities of life. 11.45 p.m.
I do not propose to argue that point further, although one could illustrate it from many of the forms of tax relief already provided in our finance legislation, butt I assert that it is wrong in principle, and accepted as wrong, that where a man's income is insufficient to cover payment for the necessities of life food, clothing and shelter—plus a reasonable allowance for all the other things that go towards making a modest standard of living, we should take any tax from him, and thereby diminish his ability to provide a reasonable standard of living for his family.
The need to afford relief to people who are at present having to pay an excessive amount for one of the basic necessities—shelter for their families—arises from the fact that present rents are far too high; that they are higher than the average man or woman can afford; that under the present Government they are being increased, and that they cannot be reduced by any other means than affording relief by fiscal means.
My hon. Friend the Member for Sowerby (Mr. Houghton) will probably argue that this form of relief from the excessive cost of providing a home will not be necessary in future, because, in the not-far-distant future, we shall have an opportunity to implement the Labour Party's very admirable policy, and I fully accept that. I am sure that that policy will succeed in reducing rents to reasonable levels, and I have every confidence that a future Labour Chancellor and a future Minister of Housing will co-operate in such a way as to ensure that the 1486 scandal of our present society, by which a large number of our citizens are compelled to live either homeless or in substandard homes because they cannot afford decent homes, will he removed.
Nevertheless, I have to deal with the present Government, the present Chancellor and the present Minister of Housing, and with a Tory housing policy and rent policy established over a number of years and still being continued by the present holders of those two offices. The foundations of that policy were well and truly laid by the right hon. Gentleman who, before he became the worst Home Secretary of modern times, earned the reputation of being the worst Minister of Housing of the twentieth century. Under his administration were laid the three pillars of Tory housing and rent policy—first, the Rent Act, 1957, which is progressively abolishing public control of rents in this country; secondly, the Town and Country Planning Act, 1959, which created a free market in land and thereby laid the foundations for the large increase which is now taking place in the cost of housing and consequentially of rents; and thirdly, the creation or recreation of a free market in money.
§ The Chairman
Order. I am sorry to interrupt the hon. Member, but surely it is the Income Tax aspect of this matter to which he should devote himself on this proposed Clause.
§ Mr. Warbey
With great respect, Sir William, I am seeking to show that a form of relief to persons who have to pay excessive rents is necessary, and in order to establish that case I think I have to show that those rents are excessive, that they are beyond what many people can reasonably be expected to pay, and that therefore they should receive compention in the form of tax relief. That is the essence of my argument. This Clause, after all, introduces a new principle into our taxation. It is not a case of moving an Amendment to increase or decrease an existing relief. This proposes an entirely new form of relief.
With great respect, Sir William, I suggest that when one is proposing an entirely new form of relief and a new method of applying fiscal measures to the remedying of social injustice, one has to show that that social injustice exists, that it exists also as a result of the policy of the Government who impose taxes 1487 upon the people, and that therefore it is the duty of the Government to rebate some of those taxes in order to redress the balance. That is the essence of my argument, and I suggest that I am entitled to show, at least briefly, that this is the policy of the Government and that it has these consequences and therefore requires these remedies.
I was saying that those policies that I have named have had the effect of creating a situation in which the cost of land has risen to excessive levels, in which speculators have been able to build up the cost of land for building, and therefore for the provision of houses to rent, to levels which are altogether excessive, and the excessive character of which is demonstrated by the fact that the share values of property companies in the last six years have risen by no less than 12 to 14 times their former value. That increase in value has come partly out of the pockets of the people seeking homes in which to live.
In the same way, the creation of a free market for money, with a prohibition on local authority borrowing for the provision of housing at less than the prevailing free market rates, has had the effect of increasing the economic rent of houses to levels which are far beyond those which householders can reasonably be called upon to pay.
The present Minister of Housing has continued and intensified this policy, building upon the foundations laid by his predecessor. He announced soon after he assumed office that he was putting pressure on local authorities to compel them to charge the economic rent of a council house to every tenant who could afford to pay. [HON. MEMBERS: "Hear, hear".] Of course, that principle sounds very good when it is enunciated in that form, but let us look at the facts. What is the present economic rent, and what proportion of their incomes can people reasonably be expected to pay in rent?
The present economic rent of a typical three-bedroom council house is £3 10s. a week, excluding rates, and the addition of rates brings it up to about £4 a week. How many people can be expected to afford to pay £4 a week for housing out of their incomes? What is the Government's standard? Do they expect a man with a wife and, say, one 1488 child under 11, bearing as he does the taxation burden which still falls upon him today and bearing the burden of National Insurance contributions which have recently been increased, to pay rent and rates of £4 a week if his gross earnings are less than the average income of the adult male earners in this country, namely, £15 10s.? No man with gross earnings less than £20 a week should be compelled to pay a rent of £4 a week, including rates.
§ Mr. Peter Emery (Reading)
In his estimate of £4 a week, what proportion does the hon. Gentleman consider is subsidy either from the Exchequer or from the local authority?
§ Mr. Warbey
I do not know whether the hon. Member has just come in or has only just begun to listen to the discussion.
§ 12 m.
§ Mr. Warbey
The hon. Member still has not followed my point. My starting point was the statement of the Minister of Housing and Local Government that people occupying council houses should be compelled to pay the economic rents of those houses as long as they could afford to do so. The economic rent of a typical three-bedroom house is, as stated again by the Minister of Housing and Local Government, today £3 10s. a week excluding rates; say about £4 a week including rates. Those are the rents and rates which the Minister of Housing and Local Government indicates that people occupying council houses ought to be compelled to pay.
§ Mr. Emery
The hon. Member must not mislead the Committee, and I am certain he would not want to. These statements are made about the economic rents of new property becoming available at the moment. The Minister has not 1489 implied that the economic rent of all local authority property today is at the level of £4 a week. This is why specifically I have asked the hon. Gentleman if he will tell the Committee what subsidisation is a local authority tenant able to obtain on average property. I have asked him so that we can judge the matter in fairness, and so that we can be certain what benefits the local authority tenant is getting from his rate subsidy and Exchequer subsidy.
§ Mr. Warbey
I shall come to that in a moment. First I want to deal with the point which hon. Members opposite approved of by their voices. I think the hon. Member was among them. They indicated their approval of the principle that every occupant of a council house who can afford to do so should be compelled to pay the economic rent of the house. Now the economic rent of a three-bedroomed council house—I am sorry to have to repeat it again—including rates is about £4 a week.
§ Mr. Frank Taylor (Manchester, Moss Side):
Council rents in Manchester are 16s. a week on average. Is the hon. Member suggesting that the average subsidy on those houses is £3-odd—a few more shillings—for every house?
§ Mr. Warbey
That may well be. If that is the case I congratulate Manchester Corporation on being able to relieve its tenants to so large an extent, but to an extent which is contrary to the policy of the present Minister of Housing and Local Government, and to an extent which the Minister of Housing and Local Government is fighting hard to change. That the Minister is fighting hard to change that is indicated in the statement to which I have already referred and, secondly, by the statements made in his new White Paper on housing policy, where he has indicated very clearly indeed that it is his intention to go on with the policy of compelling local authorities to accept the principle of differential rents in order to qualify for housing subsidy at all, and that the total value of housing subsidies is therefore likely to be reduced, not increased.
I have still not had from any hon. Member opposite, in all these interjections, any indication of what they consider to he a reasonable proportion of a householder's income which he should 1490 be expected to pay in rent. If a man is expected to pay in rent and rates a sum of £4 a week he must have gross earnings of not less than £20 a week. Hon. Members opposite talk about subsidies as if they were a form of compensation for the present high cost of providing houses to rent. The subsidy is £24 a year, or less than 10s. a week. The economic rent of the typical house is £3 10s. a week, and two-thirds of that sum is made up of interest charges.
That economic rent is double what it was five or six years ago and treble what it was under a Labour Government. The reason why it is treble under the present Government is that interest charges for building houses to rent have been allowed to rise to the present appallingly high level, and the subsidy which at one time was a reasonable compensation to the local authority for having to pay interest for the provision of houses is nowhere near providing the very large sum which local authorities have to pay.
§ The Deputy-Chairman (Sir Robert Grimston)
I have been listening carefully to the hon. Member. I understand that he is developing a case for this Clause, but frankly I do not see where we are getting to. Could the hon. Member please address what he is saying now to how it affects the Clause?
§ Mr. Warbey
Yes, Sir Robert. When your predecessor was in the Chair, I explained the general tenor of my argument and its relationship to the new Clause. I thought that to justify the new Clause it was necessary to show that the current and prospective levels of rent are on the average higher than people can be expected to pay and retain a reasonable sum to provide for the other needs of their families and, that being so, it was necessary to provide them with some additional means of relief by way of tax rebate.
Members opposite suggest that relief is being provided by means of a subsidy. I was merely going on to say that that subsidy is quite inadequate for the purpose because it represents only a quarter of the interest burden which enters into the economic rent of a council house, and that therefore something more is needed in addition.
That is why I submit that, since the Government are not prepared to reintroduce rent control on a substantial scale, 1491 or to lower interest rates, the only thing they can decently do is to provide some relief by way of tax reduction.
In order further to illustrate the point, I would like to show how this position will operate for people who will be affected, or who are hoping to benefit, by the new proposals made by the Minister of Housing and Local Government in the White Paper issued yesterday. The Minister has indicated what be considers to be the level of rents which wage and salary earners seeking to have decent homes are likely to be called upon to pay. In his proposals for a Housing Corporation— which is apparently to have the specific intention of providing houses to rent for young married couples in the salary earning and higher wage earning class who nevertheless do not earn enough to buy homes of their own—the Minister committed himself to the statement that the rents they are likely to have to pay will be between £4 and £7 a week.
This is really a most dishonest fraud on the many young married couples who are looking forward in the coming years to having a decent home of their own to live in. It is so dishonest that it can only be righted by the present Government by adopting this Clause.
What does it mean in reality? Let us take the case of the typical wage or salary earner whom the Government say they have in mind. I take it that, by the time the Housing Corporation gets into action, in view of the further increase in the cost of land which will have taken place, in practice it is unlikely to be able to charge an economic rent lower than £4 to £5 a week, on top of which there will be rates averaging about 15s. a week. This will mean a total of £5 a week which a family will be expected to pay. Who is going to be able to pay that sort of figure?
Let us look at the situation of some typical familities among those the Government are said to have in mind.
Let us take, first, the case of the man earning the average wage of adult male workers—about £15 10s. a week, about £800 a year. That man under the new proposals made by the Chancellor in the Bill, taking into account all the reliefs that the right hon. Gentleman offers in 1492 the Bill, will still have to pay tax of £46 2s. a year. On top of that, with the increase in the insurance contributions which are just coming into force, assuming that he is contracted in he will have to pay 17s. 4d. a week. With 17s. 9d. tax and 17s. 4d. insurance contributions, the net take-home pay of the average adult male worker will be £13 14s. a week. Does any right hon. or hon. Gentleman suggest that a man with a wife and a child under the age of 11 and with a net income of £13 14s. a week will he able to afford rent and rates of £5 a week, leaving him with £8 14s. to pay for food, clothing and all the other necessities? All hon. Members would regard that as totally unjust.
I go higher up the scale and take the case of the £1,000 a year man—the case, for example, of the Member of Parliament, whose salary is £1,000 a year, the case, for example, of the highest level of wage earner and the average level of salary earner. It sounds a lot, but it means £19 5s. a week. On this a married man with one young child will have to pay on the new scales tax of £96 5s. 6d., or £1 17s. 8d. a week. His insurance contributions will be 19s. 4d. The total deductions from his pay will be £2 17s. a week, leaving him with £16 8s. Is a man with a net income of £16 8s. a week expected to pay rent and rates of £5 a week to provide a home for his wife and child? Is that what the Government expect?
There will be some who will be driven to such desperation by the general housing policy of the Government that they will take on that obligation. They will take on that obligation either by forcing their wives to go out to work to help to pay the rent or by sacrificing the rest of the standard of living of their family. That is why I say that the new housing policy of the Government is just as much a cruel fraud on the mass of the home seekers as their past housing policy. Any right hon. or hon. Member can work out for himself that to be able decently to afford rent and rates of £5 or £6 a week a man needs to have gross earnings of not less than £1,500 a year. That rules out completely practically every wage-earner and three-quarters of the salary earners. Unless the Chancellor is prepared to adopt the principle of this Clause, nine- 1493 tenths of the population will derive no benefit whatever from the Government's housing proposals. Nine-tenths will be condemned for years to come, should we have the misfortune to retain a Tory Government, to sacrifice their general standard of living in order to be able to afford decent homes for their families.
We are placed in a situation in which in order to provide large incomes for money lenders and speculators 90 per cent. of the people are mulcted in high rent and mortgage payments which leave them with a miserably low standard of living in this so-called affluent society. That is the situation which I ask the Chancellor to remedy by the only means left in his hands. That is by introducing the principle of a tax relief for the payment of rent.
§ Mr. Barber
The hon. Member for Ashfield (Mr. Warbey) has spoken at some length about this new Clause. He also referred to it during an earlier discussion we had in Committee. As I understand, he considers that this proposal for some form of rent allowance is particularly appropriate because of the abolition of Schedule A. I gather from what he said on an earlier occasion that he does not dissent from the proposal to abolish Schedule A, but he thinks that if the owner-occupier is to be given some form of tax relief so also should the tenant. I must tell him frankly and straight away that I fundamentally disagree with him. It is with no disrespect to him that I say that in my view his argument is wrong both in logic and on social grounds.
§ Mr. Warbey
I hesitate to interrupt the hon. Gentleman so early, but I hope that he will address his reply to what I said in the course of my speech this evening, in which I did not base my argument at all on the parallel of the abolition of Schedule A.
§ Mr. Barber
In that case I shall not refer again to the speech the hon. Member made previously when he gave notice that he would put down this new Clause. That relieves me from the necessity to deal with that matter. I certainly do not intend—I say this with all respect to him—to answer all the points he made about the Government's housing policy or the attitude of 1494 previous Ministers of Housing. It has always been the policy of this Government, as he knows full well, to encourage home ownership, to build up what we call, and many hon. Members opposite accept, a property-owning democracy. I need not weary the Committee again with figures of achievement over the past few years in this respect. I believe that the abolition of Schedule A will give one more boost to the extension of home ownership. On that score it has been welcomed, I believe, by all hon. Members.
It is true, as the hon. Member indicated, that a house—whether owner-occupied or not—is a necessity of life just like food and clothing. It is true that no Chancellor of the Exchequer could ignore such basic facts as the cost of renting a house, to which the hon. Member repeatedly referred, in the same way as no Chancellor of the Exchequer could ignore the cost of food, but there is no better case for a special tax allowance in respect of rent than there is for a special tax allowance in respect of the cost of food.
The proper way to take account of these items is in the personal allowances, which the Bill proposes to increase by £80 for married persons and £60 for a single person. There are millions of rent-paying tenants who are protected by the State from paying an economic rent either by housing subsidies or through rent control. When considering relief from Income Tax, I am sure that the right way to take account of the factors to which the hon. Member referred—the size of income and the cost of the necessities of life, including the level of rents—is by the various personal allowances, and this my right hon. Friend has done this year. The Committee will bear in mind that the total cost of the remissions amounts to £240 million in a full year. The hon. Member referred to those whose incomes were below £20 a week. But 42 per cent. of the remissions in personal taxation will go to people with incomes of less than £1,000 a year.
The cost of the hon. Member's proposal, I understand, would he £50 million in a full year, which is slightly more than the cost of abolishing Schedule A, but it would be unlikely to end there, and if an allowance were given for all rents—I accept that this is not the hon. Member's immediate intention—the cost 1495 would be in the region of £150 million. For these reasons, I ask the Committee to reject the new Clause.
§ Mr. Houghton
It is a great misfortune that this Clause is debated at this hour of the night, for there could have been a good deal to say about it. My hon. Friend the Member for Ashfield (Mr. Warbey), with respect to him, did not develop the case for the Clause in the way in which I would have done had been moving it. He did not explain the significance of the relief proposed in the new Clause and why it is what it is.
It arises directly out of the abolition of Schedule A on owner-occupiers. But for that, the new Clause would never have made its appearance on the Order Paper, at any rate not in its present form. It is the sort of thing which the right hon. and learned Member for the Wirral (Mr. Selwyn Lloyd) anticipated would arise if Schedule A were abolished on owner-occupiers. It was this sort of proposal which he said was a sobering thought when he was asked to abolish Schedule A. He specifically said that some such claim as this would be made and it would be costly. He said that he had to keep it in mind. It was to an extent a discouragement from abolishing Schedule A, because the cost of abolishing Schedule A on owner-occupiers, high as it was, would become higher still if he had to concede something in the way of rent relief. But only a week ago the Economist, in an article entitled "The Ghost of Schedule A", referred to the prospect that this sort of claim would be made and that Governments would hear repeatedly about it in the days to come. So, I believe, they will.
It is too late to develop this case now, and I think we shall have to leave it to another occasion. But before I sit down I should like to explain why the proposal is that tax relief should be given on one-third of the rateable value in the case of the occupier of rented accommodation. For years now the owner-occupiers of dwellinghouses have been assessed for Income Tax purposes under Schedule A on annual values very much below the current rental value of their houses. The assessments have been broadly related to the 1496 annual values of 1939, and they were quite low enough even at 1939 values.
Throughout the intervening years, although the Income Tax Act defined the assessment of the occupation of property owned by the occupier at the annual value on conventional lines—current rental value—owner-occupiers have, in fact, been paying tax on values which have long been obsolete. The new valuations are, broadly speaking, two and a half to three times the old valuations for rating purposes, and it seemed that if a rent allowance were to be claimed it would be appropriate that tenants should get tax relief on something equivalent to the old valuations since it was on the old valuations that the owner-occupier had been assessed. That is why it was suggested in the new Clause that to have relief not on the full current valuation of the house but on the broad equivalent of the valuation on which the owner-occupier had been assessed would be a fair compromise. That is the basis of the new Clause.
As to the relative tax position of the owner-occupier and the tenant, there is a good deal that can be said about that. There is no question that in present circumstances the owner-occupier, the person who is buying his house, is buying an asset of appreciating value. He is buying it on mortgage granted to him on the current value of money which he will repay over the years at the present value of money. That also is a hidden asset in the eventual outcome of the transaction.
However, I do not think that I should pursue the matter now. The Committee is weary; I am weary. These debates go on late into the night. We have a long day in front of us tomorrow and we have to see the Bill through Committee before we break off tomorrow night, or Friday morning. I will content myself with saying that I would be unhappy if this case went by default on the first occasion that it has been debated specifically on a new Clause. I think that I ought to allow it to rest at that. I do not want to get involved in a cross-argument about it. I just put on the record one or two of my thoughts on the subject. I know that there is an answer to it—I fully acknowledge that and the Financial Secretary was probably discouraged from deploying the reply to me because my hon.
1497 Friend invited him to reply to something else. That is just the state we get into when we carry on too late at night.
I hope that when I sit down somebody will pop up quickly and bring this debate to an end, because I do not think that it would be profitable to continue it any longer. As long as what I have said is on the record for later consideration on another occasion, a more suitable occasion, I shall be content.
§ Question put and negatived.
§ Mr. Boyd-Carpenter
I beg to move,That the Chairman do report Progress and ask leave to sit again.As I indicated a little time ago, it seems to us that this is a good time to break off and start with the new group of new Clauses which Sir William indicated would be taken with the next new Clause. But I must warn the Committee that we have a very heavy programme ahead of us—I was about to say tomorrow, but in Parliamentary language it is this day—and it will require a good deal of hard work and co-operation if we are to finish tomorrow, as we must, without imposing on the Committee a very late sitting, indeed. I agree with the hon. Member for Sowerby that we have proceeded far enough this morning.
§ Question put and agreed to.
§ Committee report Progress; to sit again this day.