HC Deb 30 May 1963 vol 678 cc1612-26 Part VIII of the Act of 1952 (so far as relating to personal reliefs) shall have effect in respect of the year 1963–64 and any subsequent year of assessment with the addition immediately after section 209 thereof (which relates to personal reliefs) of the following section:— "209A. If the claimant proves that during the year of assessment he has made donations to churches and charities amounting in cumulo to a sum in excess of ten pounds, he shall be entitled to a deduction from the income tax with which he is chargeable equal to tax at the standard rate on the amount of such contributions or on one tenth of his income, whichever is less".—[Mr. Hendry.]

Brought up, and read the First time.

The Deputy-Chairman (Sir Robert Grimston)

I think that with this new Clause No. 27 we can discuss the new Clause No. 28, "Surtax on settlements for churches and charities" and the new Clause No. 29, "Deductions for certain donations to churches and charities."

Mr. Forbes Hendry (Aberdeenshire, West)

I beg to move, That the Clause be read a Second time.

These three new Clauses are designed to assist the State, through the fiscal system, to discharge its responsibility for a part of our national well-being which is often forgotten. In this country we have a welfare system which is the envy of the world. Almost all our material needs are catered for, and health and housing and education have reached levels which were not dreamed of fifty years ago. Almost everybody in the land has achieved a very high standard of living, and rightly so.

Sickness and old age have lost the terrors that used to be connected with them, the terrors of possible destitution, but sickness and old age have not lost, and cannot lose by the operation of the Welfare State, the terrors which only spiritual comfort can remove. These terrors are equally real and they cannot be dealt with by a Welfare State. They must be dealt with by outside agencies, principally the Churches and charities which bring the spiritual comfort and the human sympathy which are so necessary.

The tragedy of the present day is that the very system of taxation which has produced unparalleled material prosperity has undermined the spiritual agencies by largely drying up their sources of finance. At a time when, in the material sense, we have never had it so good, it is true to say that in the spiritual and moral sense we have never had it so bad. The very influences which could cure the situation are being starved of their very lifeblood by the incidence of taxation.

At a time when the ordinary people are being shown a deplorable example by full newspaper reports of sordid and disgusting divorces, large housing estates are being deprived of the churches which they so badly need and which cannot be built for the lack of a sum of money which is small compared with that squandered on the costs of a recent and particularly notorious divorce case. At a time when any publisher has only to publish an indecent book to make vast profits, there are country parishes without a clergyman nearer than 20 miles.

All this stems not from any positive Government policy, but largely from the fact that the taxation system which has produced such excellent material results has eroded away the means of support for our spiritual needs. The incidence of taxation has made the giving of the traditional tithe quite impossible, without putting anything else in its place. These Clauses are an attempt to put that right.

The first is simply to enable individuals to give the churches and charities up to the traditional tithe of their income. This is not a new principle of taxation. It is firmly based on tradition throughout the ages in this country. It is still the current standard taxation practice in the United States and in Canada, where allowances from taxation are given up to the tithe of the taxpayer's income.

I fully appreciate that this proposal might cause a good deal of administrative trouble in the case of very small claims, and, to avoid undue administrative difficulty, I have suggested a lower limit of £10. Anyone who genuinely cannot afford to give £10 a year to churches and charities has no Income Tax problem anyway. On the other hand, any provision which would increase the average contribution given to Churches and charities to only £10 would make an inestimable contribution to the welfare of those agencies.

It is incredible but true that it was reported to the General Assembly of the Church of Scotland last year that the average contribution to that Church was only £3 17s. 10d. a year, so it is obvious that to increase the average to only £10 would make a revolutionary change in the finances and well being of that Church.

I do not want again to draw attention to the poverty in which the clergy try to do their work. It is much more important to show that unless somehing is done, and done quickly, there may soon be no clergymen at all to do the work that has to be done.

7.0 p.m.

Recently, I was asked to give legal advice to an ancient congregation who were condemned to extinction by their inability to find a Minister. I was interested in the situation, and on looking into the facts I found that in the Church of Scotland there were only 40 or 50 candidates preparing themselves for ordination to meet an annual wastage of well over 100. I do not belong to the Church of Scotland, but I know that other denominations are in a similar plight. With their present resources the Churches cannot start to compete with other callings for young men of the proper calibre and education.

I am sorry that I cannot estimate the cost of my proposal, but I am convinced that it would not be serious from the point of view of the Exchequer. On the other hand, the effect on Churches and charities of quite a small sum would be quite spectacular, and possibly my hon. Friend can tell the Committee of the experience of the taxation authorities in the United States and Canada, where such a system has been current for many years.

My second new Clause is intended for a rather different purpose. What I am aiming at here is the restoration of the right of Churches and charities to recover not only Income Tax, but Surtax in respect of the income they derive from 7-year covenants. Some years ago this right was denied them, but its restoration would involve no new principle of taxation. Indeed, it is possible for a taxpayer to a give a 7-year covenant in favour of an individual priest or an individual Minister or an individual beneficiary to a charity and enable that person to recover the Surtax benefit.

To restore this right to Churches and charities would give no advantage whatever to the taxpayer, but it would be of great value indeed to the charity or Church which stood to benefit from it. I suggest that it is only justice that this right should be restored to Churches and charities, because they have lost a great part of their income from the success of the Government in handling the fiscal system in recent years.

The reduction of the standard rate of Income Tax to 7s. 9d. made great reductions in the covenanted incomes of Churches and charities. This has been accentuated every time the Chancellor has found himself able to relieve other groups of people from the incidence of the standard rate of Income Tax.

These losses are very serious and they cannot be made up by increased generosity on the part of the donors, because to do that would mean tying themselves up for another seven years at least of an unchartered future, and the only way that I can see of restoring the losses which have been suffered by the Churches and charities in this way is to restore the right to recover Surtax as well as the Income Tax deduced from the income involved in these covenants. I stress that this would be of great advantage to the beneficiary, but that it would be of no material advantage to the taxpayer.

My third new Clause is complementary to the first. It applies to companies as opposed to individuals, and I am advised that for technical reasons it is not possible to combine the two in one new Clause. This Clause seeks to enable companies to play their part in this aspect of our national well-being. In America and Canada companies as well as individuals are entitled to give up to a tithe of their incomes to Churches and charities.

With a view to upsetting to the least possible extent my right hon. Friend's budgeting for this year, I have been much more modest in my proposal and I have limited myself to proposing that they should be allowed to give up to 1 per cent. of their income. This would cost the Exchequer the very modest sum of £30 million, but it would yield to the recipients no less than £20 million. This is indeed a princely sum by their standards, though a comparatively small sum by national standards.

I think that I need make no elaborate justification for this proposal. A company may charge against its profits the provision that it makes for the material welfare of its employees. It can charge clinics, sports grounds, recreation halls, holidays, and that sort of thing to its profits. All these are allowable, but if the company proposes to give a donation to build a church which is just as much needed by its employees, it is not possible to charge this against profits. There is no practical possibility of a company granting 7-year covenants. It is not possible for a company to mortgage its future profits in that way, because there may be no future profits to mortgage. On the other hand, an unexpected success, or a specially good year, may well prompt the directors of the company into some special act of thanksgiving, but at present they could not do that until the tax gatherer has taken his share.

This nation has a great tradition for maintaining high principles. Throughout the centuries we have been world leaders in setting a standard of values. Now it seems that we are rapidly degenerating into worshippers at the shrine of materialism because our standards have been neglected. Let us do something before it is too late to make sure that we realise our responsibilities in the matter. My hon. Friend has a great opportunity here, and I urge him to show his concern for this side of our national welfare by accepting at least one, if not all, of these three new Clauses.

Mr. Norman Cole (Bedfordshire, South)

I support my hon. Friend the Member for Aberdeenshire, West (Mr. Hendry) on these three new Clauses. If I differ from my hon. Friend at all, it is only in the fact that he was rather more apologetic than he need be in asking for these concessions.

No one can deny that our material standards have increased immeasurably since the war and some of us feel—and I believe that our opinion is shared by many people in this country—that the more serious parts of life, the spiritual parts, have not for one reason or another kept pace with our material advances. One of the outward indications of this spiritual side of our life is the provision not only of places of worship but the provision of those who will conduct and lead that worship.

I have recently had the unfortunate task of presiding over the ending of a church which in the course of the next week or two is to be demolished. The church is not 400 or 500 years old but only 80 years old, and yet in a few months it will no longer exist. Instead, we shall have other buidings on the site. I do not believe that we want to see this kind of thing happening all over the place.

None of the churches, free or established, has enough money to keep itself going in comparison with other walks of life, and very few people, except those in substantial livings, have what might be considered a reasonable salary. I do not agree that there will be a shortage of ministers in future, because I think that there will always be decent men, and decent women, who will do this job, but is it right that in a society as affluent as ours we should take advantage of the generosity of these men and women and continue to get leadership in religion at a cheap rate? This, in fact, is what is happening. We are getting our leadership in spiritual values on a cheap basis.

We have passed from the idea of a certain portion of a man's or woman's income being given to the Church, and as distinct from hundreds of years ago when Churches probably represented the wealthiest sections of the community they are now in many respects the poorest in the community. This country has nothing to be proud of in that fact. What is it that we are asking for? We are not asking for anything to be given out of the huge Budget income but that something should not be taken away.

In dealing with the seven-year covenant to which my hon. Friend referred, I have never understood why it could apply only to the standard rate of Income Tax and that if a man was forced to pay the standard rate plus a certain amount in Surtax, the Surtax part was gathered by the Treasury. Why should this be so? I cannot believe that this is too complicated. It indicates a very considerable lack of generosity, a sort of halfway measure to try to palliate the position and one which is not prepared to go the whole way.

We have many cases of people who make their contributions to churches. Many people, thanks be, make their contributions to the Free Churches and the established Church. They pay out of taxed funds. Sometimes it is not possible to make a covenant and the money they give they have already paid tax on. Therefore, the Churches lose because not many people are necessarily able, or in a position, to add back the amount of tax which they have already paid. I believe that if the Chancellor—or his Ministers—was prepared to give a lead in this matter, to make the sort of concessions which are covered by these three Clauses there would be hardly a dissentient vote.

I would not be convinced—I warn my hon. Friend in advance—by the sort of argument to which we listened earlier about the complications of doing this, because already the system exists to a very large part. Some parts dealt with in the second of the three Clauses about settlements may be somewhat new, but the matter of putting a Surtax basis in place of the standard rate as regards covenants is certainly not new. It is a question only of allowing the maximum rate on Surtax paid at 17s. 9d. in the £ instead of on 7s. 9d.—that is all there is to it.

I am quite aware that Surtax is collected under a different method and in a different way, but the final result on the taxpayer's annual return is quite easily arrived at. I admit that the third Clause may strike a new principle in regard to contributions by firms in the future. But, there again, this is not insuperable.

I hope that in the reply we get to our arguments about these three Clauses, we shall have a clear, outspoken reply if these are not acceptable in principle, because and I believe I speak for my hon. Friend, will not be satisfied by being told that they are accepted in principle, but are impossible in practice. This I cannot believe. I think that in a country like ours, enjoying all the standards of material affluence such as have never been enjoyed before in the whole of its history, this sort of Clause—may I say this in reference to the reply which the Minister made earlier to an hon. Friend of mine—is not new in what it is trying to do. I have had other similar Clauses to which I cannot refer because it would be out of order, which have been tried again and again over the years and have always been met with rebuttal by the Treasury. Therefore, the principle of this new Clause is not new.

If in this very affluent, material age we cannot do something to show that we still recognise the value of these things spiritual and of these matters which are of the more serious side of life as distinct from the ephemeral things that we see today, we have much cause for shame. The solidity and future of our country does not depend upon our degree of affluence or our ever-heightening process of prosperity. It depends upon the proper balance between those things which pass from day to day and those things which endure and go to the very heart and root of man. I hope that if these new Clauses are not accepted by my hon. Friend on the Treasury Bench, he will openly say so. If he does not accept the principle, then at least we shall know where we stand, because we cannot accept the suggestion that this is too complicated a matter to be put into practice.

7.15 p.m.

Mr. W. R. van Straubenzee (Wokingham)

This matter has been so precisely argued that any hon. Member who wants to support the argument does not need to take more than a moment of the time of the Committee.

There are two further considerations beyond those which have been adduced which might commend themselves to the Economic Secretary even if he asks us tonight for time to think further about it before another occasion. They are these. I think that it could have been argued that in the fairly recent past the state of our charities was, to use a colloquial phrase, in a mess. But because of legislation recently enacted and now increasingly being brought into effect, we are witnessing an effective codifying of the many charities which we have and are learning a great deal about them which we did not know before. Therefore, this House of Commons has put the state of our charitable law in order and it may be that this will remove some possible anxiety which previous Treasury spokesmen might reasonably have felt.

The second reason that I give to my hon. Friend is this. I think that it is probably true to say that in all Churches there has hardly ever been a time when the financial burden associated with them has been more widely shared, or when there has been brought into practice—does the hon. Gentleman wish me to give way? Is there some controversy?

Mr. Arthur Lewis (West Ham, North)

The hon. Member is talking about the financial difficulties of some members of the Churches. There are also the difficulties of some hon. Members of the House, who have been sneered at and jeered at by the hon. Member.

Mr. van Straubenzee

The hon. Gentle man is quite wrong. I was not talking about the financial difficulties of the Churches. I was saying that there had never been a time, probably, in which the financial responsibility for the Churches had been more widely shared. The hon. Gentleman's interruption was not relevant.

In point of fact, there has never been a time when these responsibilities have been more widely shared. I am only seeking to say that very large numbers of members of individual Churches are now bearing financial burdens which they had not previously done by way of schemes of one sort and another, which means that they contribute, sometimes at very considerable cost, and burden themselves for the Church to which they belong.

I am only seeking to put before the Treasury Bench that this is a more developed state of affairs than it has probably ever been before. This I should have thought is a good social thing which the State might very well and very reasonably bolster by way of its tax laws. it is for these two reasons, in support of the Clause so admirably moved by my hon. Friend, that I should like to hope that the Treasury Bench may feel able al least to give consideration to the arguments.

Mr. du Cann

We have listened to a very moving and eloquent plea by my hon. Friend the Member for Aberdeenshire, West (Mr. Hendry), ably supported by my hon. Friend, the Member for Bedfordshire, South (Mr. Cole) and my hon. Friend the Member for Wokingham (Mr. van Straubenzee). I agree with a great deal of what they said.

I agreed with my hon. Friend the Member for Aberdeenshire, West when he said there was great need for private help in spite of the Welfare State. Of course that is perfectly true. I agreed with my hon. Friend the Member for Bedfordshire, South, when he spoke of the importance of spiritual values, which again was a point brought out by my hon. Friend the Member for Aberdeenshire, West. I agreed also when my hon. Friend who moved Second Reading of new Clause 27 spoke of church needs. I think there is not an hon. Member who is not conscious of that problem and does not share my hon. Friend's concern. There are other matters about which we should be concerned, but none the less, that is a particularly important one.

I understand also the additional points which were made by my hon. Friend the Member for Wokingham. I applaud the enthusiasm with which my hon. Friend and his colleagues make these proposals, but I am sorry that I cannot agree with their judgment of the method we might perhaps adopt in order to do something about this very real problem. Most of the discussion has been about the churches, but these Clauses go very much wider. They refer also to charities, although we have not heard very much about charities in this debate.

We are considering three new Clauses. The first two are to give what one might call individual tax reliefs and the third is to give a tax relief to companies. All three are designed to do the same thing, to be more helpful to Churches and charities. I shall deal first with new Clause 27. This proposes to introduce into Part VIII of the Income Tax Act, 1952, a new personal allowance. This would be given to any individual claimant who proved that during the year of assessment he had made donations to Churches and charities amounting in total to more than £10.

My hon. Friend the Member for Aberdeenshire, West asked in particular about United States practice. It is bad enough for me to have to answer for United Kingdom practice without having to answer for U.S. practices as well, but I call his attention to a short debate we had last night on a somewhat similar suggestion, which was made by the Opposition and in particular by the hon. Member for Stoke-on-Trent, Central (Dr. Stross). It was that we should be more liberal in tax concessions to those who may give some money to charities, with special reference to art galleries and museums.

In that debate we talked about United States practice and my hon. Friend the Member for the Isle of Thanet (Mr. Rees-Davies) was particularly eloquent on the subject. I hope that none of my hon. Friends will think that American practice in this regard is wholly desirable. I can assure the Committee that it is not. The United States revenue authorities are not altogether happy about it and my lion. Friend the Member for the Isle of Thanet said last night that the practice had become a racket. In my opinion, it would not be desirable to have it here.

Many schemes have been canvassed and suggestions made for helping Churches and charities. I do not doubt that my hon. Friend the Member for Aberdeenshire, West has in mind very much some of the suggestions canvassed in the newspapers by Sir Peter Macdonald. Some of these matters were discussed in another place a little time ago. My hon. Friend's proposal, however, differs substantially from the proposals made by Sir Peter Macdonald. My hon. Friend wants to go a very great deal further.

I wish to speak now of particular objections to variable tax relief for charitable contributions. The chief objection—in spite of what my hon. Friend said—is the very formidable administrative difficulty. That is sub- stantial. I shall not particularise, but perhaps, as he seemed a little uncertain on the point, he will allow me to call attention to paragraphs 184 and 185 of the final Report of the Royal Commission which sets out the matter very clearly. One has only to think of the structure of the P.A.Y.E. system to realise that if we had a variable contribution it must inevitably cause substantial difficulties.

Even if that were not so, there are substantial objections to this proposal. The man who contributed £11 under new Clause 27 would get the allowance in full, but the man who contributed £10 would get no tax relief at all. I quite understand that my hon. Friend wants to encourage generous contributions and it is important that we should do that, but it seems unreasonable that the rich man should get the benefit of this tax concession while the widow with her mite should not. That seems inappropriate.

There are general objections to a tax allowance for contributions to charities. One sees them clearly when one remembers the present system of covenants to which another of the new Clauses is directed. As a matter of practice—a matter of fact, not of argument—the two systems could not run side by side. One would have to go. As the Royal Commission also said, it is very doubtful indeed that charities generally would benefit through a change-over from the present covenant scheme. That scheme is well established, it runs smoothly and, I believe, brings great benefits. I know that my hon. Friend wants to go further, but the present scheme brings benefits arid does work and we cannot have both schemes. It would be unfortunate if the covenant system were replaced by my hon. Friend's suggested system. He would in fact fail to achieve the very object he so anxiously and rightly desires.

My hon. Friend was of the opinion that the cost in relation to new Clause 27 would not be great, but that is not so. We estimate that it would be in the neighbourhood of £100 million per annum. Sir Peter Macdonald's proposals would be somewhat less expensive, perhaps £40 million. I think that my hon. Friend will agree that £100 million is a very substantial sum. I hope I have said enough to convince my hon. Friend the Member for Bedfordshire, South that I am not trying, as he suggested I might, to produce ordinary Treasury arguments which have been given from this Box year after year. That is not the position. I share his aims, but I am simply not convinced that this is the right way to go about the matter.

I am not convinced that if we went about it in this way we would have the results which my hon. Friends and I urgently and equally desire. Perhaps I could remind them of the existing benefits to charities beyond the covenant system. Exemption of charities' income from tax costs about £50 million, including about £8 million repaid in respect of covenants. For all the need and desirability, it would be very hard to expect Parliament to say that in addition to this cost of £50 million per annum there should be the new cost of the order of £100 million.

Turning to new Clause 28, the aim, as my hon. Friend explained, is to restore Surtax relief to individuals paying from income to charities under seven-year deeds of covenant. The Committee will remember that the system was changed, as my hon. Friends have reminded us, in 1946. At that time new deeds of covenant were being entered into at the rate of 60,000 to 70,000 a year. I have no doubt that that rate of increase would itself have increased if this system had been maintained. My hon. Friend asked why we do not go back to that old system, but it has created difficulty over a very long period. My right hon. Friend the Member for Woodford (Sir W. Churchill)—whom it was such a pleasure to see in the Chamber again earlier this afternoon—was most anxious in 1927 to withdraw it, and 1927 is 36 years ago.

The Committee has to face the question of the degree to which it is appropriate for the State to add to individuals' contributions. At the moment it contributes 7s. 9d. It is less than when the standard rate was higher, but is it right to suggest that the State should contribute 17s. 9d. in every £? That would be going very far indeed and would be something which we could not lightly accept.

Mr. Cole

I interrupt my hon. Friend to point out an inconsistency. He has pointed out the difficulties about the covenant scheme, but a few moments ago he said that it had worked well over the last few years. I did not suggest that 17s. 9d. should be paid, but said that that was the maximum. There are lower degrees of Surtax before one gets to 17s. 9d. in the £.

Mr. du Cann

My hon. Friend is slightly confusing two points. The covenant scheme as it exists operates satisfactorily. I defend it and think it a good thing. We have had arguments about it from both sides of the Committee earlier, but the system as it works now is satisfactory. If we had covenants for Surtax I do not believe it would be satisfactory, fair, or in the general interest. The contribution expected from the taxpayer would in general be too great. I am sorry that is so and I am sorry to disagree with my hon. Friend the Member for Aberdeenshire, West, but he invited me to give my view and I give it to him frankly.

7.30 p.m.

I cannot help feeling also that in regard to charitable matters, in spite of the argument advanced in favour of the richer people giving and being encouraged to give, it is perhaps better in the charities' own interests to encourage the widest possible spread of contribution. I am sure that this must be the way eventually to attempt to solve some of their problems. Even if that were not so, I think that my hon. Friend has failed to take into account the change which has been made in taxation in recent years. He talked about the reduction in the standard rate from 9s. to 7s. 9d., but he failed to mention the Surtax reliefs, which obviously put those better able to give into a better position to do so.

My hon. Friend said at the beginning of his speech that there is a need for giving, although we have a Welfare State. I have already said that I agree with him there. However, what he is recommending in these three Clauses, whether we give relief to individuals or to companies, is that the State should make an entirely indiscriminate contribution to charities of all sorts. My hon. Friend concentrates his attention on the Church; he is quite right to do so, but the effect would be to benefit every charity, whether that was a desirable thing to do in the national interest or not.

I cannot estimate the cost of the second new Clause. One can look back at the figures ruling in 1946, but I think that probably the total cost would very soon build up to an extremely formidable figure. The cost of the third new Clause, the company Clause, would probably not be so great. My hon. Friend suggested £13 million. I think it would probably be £l2 million. Be that as it may, there is nothing to stop prosperous companies, if they wish, making charitable contributions today. Personally, I think that most companies have a special duty in this regard, but I am still not clear that it would be right to give them a special tax advantage for that purpose.

Mr. Houghton

The Economic Secretary keeps on saying that the State makes a contribution. Is the doctrine that if the State refrains from taxing a person that person is thereby receiving a contribution from the State?

Mr. du Cann

No, I do not think it is. I have long said that I intensely dislike the suggestion that, when the Chancellor allows people to keep more of their own money, he is in fact giving something away. That has never been my view and it will never be my view. I am a great believer in lower taxation, and I think that any Chancellor has a duty to aim at that if he possibly can.

To sum up, I have the greatest possible sympathy with the purposes of the new Clauses. I agree that there is need for private help. There is certainly need for spiritual reinforcement. I also understand my hon. Friend's very strong feelings. I must point out that help is given in various ways. I believe it to be good help. I believe it to be help which is entirely justifiable, but I think that there are substantial objections, both from the practical point of view and as a matter of principle, to the proposals which my hon. Friends have produced for our consideration tonight. I am grateful to them, none the less, for having produced them, because it is urgent and important to discuss these matters. However, I do not believe that their fiscal proposals are the real solution to the problem. I hope that in these circumstances my hon. Friends will not feel obliged to press the Clauses.

Question, That the Clause be read a Second time, put and negatived.