HC Deb 04 June 1964 vol 695 cc1266-310

Question proposed, That the Clause stand part of the Bill.

4.10 p.m.

Mr. Douglas Houghton (Sowerby)

The Chancellor of the Exchequer has had a very easy ride on the Bill so far. For the Committee to dispose of the first 11 Clauses on the first day is almost unheard of. If we dispose of the remaining Clauses on the second day, as we might hope to do, the right hon. Gentleman's predecessors will be envious of his remarkable experience.

This Clause imposes more taxation than all the rest of the Bill put together. Indeed, it imposes more taxation than has ever been imposed by a corresponding Clause before. This innocent-looking Clause, dressed up it appears in a little brief authority, is estimated to bring in something more than £3,000 million. Before I go any further, I should like to ask the Chancellor to tell the Committee how much he estimates will be the receipts of Case VII of Schedule D in the total estimate for Income Tax of £3,043 million. Presumably, in estimating the receipts from Income Tax for 1964–65 there has been a breakdown of the estimates to put some figure to the Chancellor's expectations from the various Schedules and branches of the Income Tax code. I am asking what figure is included in the estimate for receipts from Case VII of Schedule D.

If the Committee rejects Clause 12, there will be no Income Tax. Income Tax will not have been abolished, but it will not have been renewed. Needless to say, if that were to happen there would be consternation in the Inland Revenue and great rejoicing everywhere else. Crowds might gather in Whitehall and Tory propagandists would tell the throng, perhaps, that we were now entering the promised land and would exhort them not to chuck it away. Liberal spokesmen might conceivably say that the Tories were only doing what Gladstone promised to do in 1874. Perhaps some of the concern of the Inland Revenue would be the possibility of hostile demonstrations outside Somerset House. I quite expect that about half the tax collectors in London would be ducked in the fountains in Trafalgar Square and the other half thrown into the Serpentine. Altogether, it would be a great occasion.

But, of course, none of this will happen. This annual tax, now renewed every year for well over a century, will be given a further lease of life. The standard rate, with all its mythology, is to be continued under the Clause at 7s. 9d. in the £. I do not say that 7s. 9d. in the £ is too high, but I do say that it is higher than it need be. If we had a fair system of taxation and if the one we had were more effectively administered and stops were put to a good deal of avoidance and evasion, I have no doubt that the standard rate could be reduced.

Nevertheless, there is always a good deal of misunderstanding about this so-called standard rate. It is really a maximum and not a standard rate. There are millions of taxpayers who do not pay tax at 7s. 9d. in the £ on any part of their incomes. Various personal allowances and earned income relief, and so on, reduce the effective rate of tax. For example, a married man with one child does not pay an effective rate of tax of 7s. 9d. in the £ until he is earning about £10,000 a year, and I am including Surtax in that. Those with investment income, whether solely investment income or a mixture of investment and earned income, are caught by the 7s. 9d. rate much earlier than the taxpayer with earned income only.

4.15 p.m.

The only point I am making in this connection is that the standard rate of Income Tax is by no means the effective rate for most of us and is not even imposed on any part of the incomes of millions of taxpayers. That is a good reason for hoping that a tax reformer, one day, will find an alternative to this rather old-fashioned idea of a standard rate of Income Tax. It creates unnecessary prejudice and misunderstanding, because in our Income Tax code we express reduced rates of tax by subtractions from the standard rate, which leads to much confusion. It is a pity that no one has yet applied in his mind, or so it seems, to finding an alternative. We should try to find a way of defining tax rates in a simpler and more progressive form, because we need to show more clearly the upward steps to the real top rate rather than the downward steps from a largely notional standard rate. But Clause 12 is here. It is traditional and, for the moment, we must consider Income Tax as it is.

I said that the standard rate of 7s. 9d. was higher than need be if we had a fairer system of taxation. I am certain that there is no hon. Member opposite who would defend the existing system and say that it was a fair distribution of the burden of taxation and was generally acceptable as a satisfactory system. Need I stress again how unfair it was, and largely still is, to tax incomes and profits, but to allow capital gains to go free? Even the extremely half-hearted step taken to remedy this position adds to the injustice of the present structure. Case VII of Schedule D, the so far invisible tax, shrouded at present in fog and mystery, is itself unfair. It taxes at the normal rates of Income Tax and Surtax only capital profits realised within short and strictly limited periods and from specified sources.

The distinction between income and capital gains is largely artificial anyway, but it is deeply embedded in the history of our taxation system. This is one of the difficulties about a rational approach to a capital gains tax. In the United States of America, as far back as 1913, it was realised that, in an expanding economy with large appreciations of capital wealth and large capital gains which could add to the disposable incomes of many people, it would be quite unsatisfactory to confine taxation to incomes alone. This is far too narrow a basis for a system of direct taxation. My hon. Friends and I have said right from the beginning that we regard the present tax in Case VII of Schedule D, which is covered by this Clause, as un- fair and inadequate, and we would strengthen it.

I doubt whether any hon. Member would be prepared to defend a short-term speculative gains tax in any discussion of fiscal principles or administration today.

Captain Walter Elliot (Carshalton)

Will the hon. Gentleman define a little more closely what he means by "capital"? As he knows, money measures the value. When he talks of "capital", does he mean household articles, houses and property of all sorts, and things like that?

Mr. Houghton

No. I am sure that the hon. and gallant Gentleman is not quite as dull as all that about the scope of the capital gains tax and the conventional definition of capital profits.

In this context we are referring to realised capital gains by transactions in land, equity shares and similar sources of increased income. There may be an argument how far certain possessions should come into the scope of a future capital gains tax; this is a classic argument among many who discuss this matter. It is a question whether we would include, for instance, jewellery, antiques, valuable pictures, and so on. But at the moment, when I talk about strengthening the capital gains tax, I am thinking of it on a more conventional basis.

But apart from the capital gains tax which we have, and which we regard as being far too inadequate, there are many rough edges in our system of taxation—especially in personal taxation—which need to be rubbed off. We have put down some new Clauses. A few of them have been put down in previous years, but others are new. We are hoping to have the opportunity of discussing some of them before the Bill leaves the Committee. I believe that the age exemption is still too low; I believe that the small incomes relief is still too low. Furthermore, there is the strange anomaly under which single persons, widows and widowers who have the expense of maintaining a household get no more personal relief than does a young single person living at home. It is idle for any Chancellor to suggest that there are limits to the scope of refinement in personal allowances and reliefs when we have so many of them in various forms throughout the whole fabric of our taxation system.

The Committee ought now to consider whether we should give some attention to the tax on war widows' pensions. This country is almost alone in taxing such pensions. That fact impeded the relief that the Committee wanted to make, some years ago, in respect of victims of Nazi persecution. When we were being asked to provide some relief in respect of annuities paid by the Federal German Government for the victims of racial persecution, we had to bear in mind the fact that we were still taxing the pensions of war widows. There again, there is scope for some sympathetic approach to the incidence of taxation. I also take the view that the lowest rate of tax—which is a derivative of the standard rate—is, at 4s., too steep an entry in the range of taxable income. There is plenty of scope there for tax reform.

What about the noticeable gulf which still exists between Pay-As-You-Earn and "Pay-As-You-Like"—the perquisites, the expenses, the entertaining, and the motor cars, on the firm's account? An employer of considerable numbers of workers recently told me, "Of course, our working chaps know what is going on. They see all this luxury and high-level expenditure on the firm, and they resent having to pay every penny of tax on their overtime, their production bonuses, their incentive payments, their weekend work, and the rest." There is not the slightest doubt that, quite apart from the revenue point of view—which is quite substantial—the general atmosphere of industrial relations is prejudiced by the continued existence of this kind of thing.

I do not know whether all this was what the Prime Minister had in mind when he spoke at Bath the other day. A report in the Daily Telegraph on 2nd June, referring to the Prime Minister, said: He also attacked Socialist plans for taxation, and said that if the tax rates of the last Socialist Government were still in force today we should be paying an extra £1,000 million a year. I am not sure what he was attacking, but is the suggestion—I ask the Chancellor this; he may know—that we are paying less today, either in money terms or real terms, than we paid in earlier years?

The Chancellor is collecting £1,140 million more in Income Tax under the Clause, with the standard rate of 7s. 9d. in the £ than the last Labour Chancellor collected when the standard rate was 9s. 6d. in the £. The Clause will yield £1,100 million more in Income Tax than was the case only five years ago, when the standard rate was the same as it is now.

Had the Prime Minister nothing to say about the millions of pounds of revenue which has slipped through the Government's fingers because of their faltering and inefficient management of our economy? Had we maintained a steady rate of economic growth of 4 per cent. there would have been hundreds of millions more automatically flowing into the Exchequer, and this would surely have enabled the Chancellor to reduce the standard rate. Apart from that, the whole nation has suffered a hold-back in its rise in living standards.

I do not know whether the Prime Minister had in mind that we might try to do something to stop the avoidance of Estate Duty. According to the Daily Telegraph of 29th May the Prime Minister has just given his son-in-law a 250-acre farm near Tewkesbury, in Gloucester, which is thought to be worth about £40,000. The report says: In making it a gift in consideration of marriage he has ensured that this will automatically be so without any tax problems. Gifts made in this way are immediately exempt from future Estate Duty. It is no good thinking that the great mass of Pay-As-You-Earners do not read these things in the Daily Telegraph and wonder what is right and proper in our taxation system.

I am sorry for giving the Chancellor a rougher time than he has been having up to now, but I am afraid that there is a lot more to come. If we cannot put something across on this Clause we shall probably not have a chance to do so for the rest of the Bill, and I propose to let the Chancellor have it all.

At present, the proportion of the national income taken in taxation is almost as high as it ever has been. It stands to reason that this must be so, because public expenditure is now running at about 4 per cent. more of the gross national product than it did seven years ago, and almost as high as when the Conservatives came to power 13 years ago—and it is still rising. But, says the Chancellor, in a speech reported to have been made at Newark, "Labour's policies will be disastrous".

4.30 p.m.

The Chancellor is a genial and agreeable man. He has ambled in and out of our debates in this Committee in a very pleasant manner and has not been called on to do very much. When he has spoken, he has done so with good humour, and, if I may say so, with intelligence. When he gets outside the House of Commons he talks political drivel. Why should he make this sort of speech at Newark anyway? After all, Gladstone's first constituency was Newark—and I lived there myself. It has a proud history and it does not thank Chancellors who go there and make wild and exaggerated speeches about Labour policies. We like the Chancellor. We regard him as the best Labour Chancellor since 1951. I hope that he will not mind that tribute, because it is rather too late in his political career to do him any harm.

I cannot, of course, refer to matters, alleged to be part of our policy, which have no bearing on taxation, but the Chancellor refers, as being in his judgment part of Labour policy, to the "punitive taxation of profits". I quote the words from the report which appeared in the Guardian. Where has he got that from? Does he ignore some of the evidence, which has now come to him from two separate directions, about the level of company profits and the need to give attention to the taxation of company profits? Does he propose to say anything to the Committee about the Report of the Public Accounts Committee, which was presented to the House of Commons a little while ago? This draws attention to the drain of revenue on the limited sample which we looked at—about £12 million a year—due to the fact that the high level of investment allowances providing, tax-free capital profits are enabling companies to pay dividends out of capital profits while deducting tax at the standard rate from distributed dividends and setting that off against their ordinary tax burden.

Does the Chancellor realise that there is probably £20 million draining out of the revenue in the circumstances described in the fourth Report of the Public Accounts Committee? That would go quite a long way towards obtaining the £100 million which he would need in order to reduce the standard rate of Income Tax by 3d. in the £. Does the Chancellor brush aside the facts which are disclosed in the Gordon Richardson Report where we are told, in paragraph 154: The effective burden of direct taxation on companies has fallen in this country in recent years despite the fact that overall the nominal rates of tax have increased from about 50 per cent. on profits earned in 1954 to 53¾. per cent. on profits earned in 1962. This is due to the improvements in the capital allowances and primarily to the introduction of the investment allowance in 1954. The other day I saw the report of a company which said that owing to the incidence of investment allowance the net tax burden would be reduced from 47½ per cent. to 41 per cent. The legend persists among hon. Members opposite that companies are payinig tax at 53¾ per cent. on profits. The Richardson Report makes clear that that is not so. It also states—I quote from paragraph 164: If account is taken of the treatment of dividends paid to shareholders we think that the percentage rate of tax effectively falling on companies in this country compares favourably with the rates which apply in the other countries we mention. The Committee mentions a number of neighbouring and thriving competitors. We say that the Report of the Public Accounts Committee, taken with the information, not previously known, regarding the level of effective company taxation which is in the Richardson Report indicates that the time has come to undertake a thorough review of company taxation.

We see again that the standard rate referred to in Clause 12 is largely a fiction even when imposed on corporate profits. I put it to the Chancellor: in his view, would it be punitive to check the decline in the effective rate of tax borne by companies? Is that his idea of punitive action? Would it be punitive even to recover some of the ground already lost by the Revenue, which is clearly revealed in the Reports before the right hon. Gentleman? That is why I say that I think an entirely fresh approach to the taxation of company profits is now called for. Things have happened recently. They were not apparent before, but now they have come out.

Mr. Stanley R. McMaster (Belfast, East)

Will the hon. Gentleman be a little more specific about his last point? Is it Labour Party policy to cut out all investment allowances so that they may not be taken advantage of in this way?

Mr. Houghton

It is not Labour Party policy to do away with or to curtail investment allowances. We should wish to use them, probably in a more discriminatory way, which would be a better way to secure the kind of investment that we want.

We shall have to consider whether the standard rate of Income Tax should apply to company profits and whether tax deducted at the standard rate from distributed dividends should continue to be retained by the companies and set against the taxation of profits or paid over to the Revenue. That is the crucial point about this exercise. We also wish to consider whether there should be a single rate of corporation tax with no separate Profits Tax at all, single-tier or two-tier. All these matters go into the melting pot since we have information about the level and operation of Income Tax on company profits which was not available in such detail before. I do not know whether the Chancellor will dissent from any of this, but I think that it is a rational and progressive approach to company taxation.

In his Newark speech the Chancellor included a reference to what he described as new forms of taxing wealth. This he included in his indictment of what he believed to be Labour policies. It is a regrettable thing if we cannot have public discussion of new forms of taxation, or the extension of existing forms of taxation, or a comprehensive revision of the whole structure of taxation, without having political prejudice imported into it at every touch and turn.

These so-called new forms of taxing wealth are in existence in a number of countries which are thriving competitors of ours. We are envious of their progress, we wonder how they have done it. We call it a miracle and look at our performance with dismay. Why, then, should we regard talk of new forms of taxation of wealth as if it were a new form of mortal sin? We wish to get it on the same rational basis as the right hon. Gentleman apparently wishes not to put it. This is something—I am sorry to ram this home again—that N.E.D.C., under his own chairmanship, said might well form part of a comprehensive overhaul of our taxation system designed to stimulate economic growth. That is the very purpose which the Chancellor is constantly saying he wishes to fulfil.

When we are talking about tax reform and new forms of taxation or varying existing forms of taxation, immediately the assumption is that we mean to increase the overall level of taxation. That is a false assumption, also. Tax reform can take place, and, I think, would take place, by redistribution of the burden of taxation rather than an overall increase in the general level of taxation. We want to get the higher revenue which is needed to finance Labour's programme from higher production and a higher gross national product. It is our economic plan which is designed to promote that improvement. If we can get it from that source it is as healthy a source as the Chancellor gets his money from and it would bear less heavily on the whole economy.

It is strange that the Chancellor should use such an extreme term as the word "disastrous" in this connection. I wonder whether hon. Members opposite have any views on the record of their own Government in the general economic field. We can sum it up by four figures. Since 1952–53 the National Debt has gone up by £4,000 million; that is, 15 per cent. The interest on the National Debt has gone up by £400 million a year; that is, 66 per cent. The amount raised by taxation has gone up by £2,800 million a year; that is, an increase of 60 per cent.

The Chairman

Order. I am sorry to interrupt the hon. Member, but I hope that in this debate on Clause 12 we will not go very much wider than the Clause.

Mr. Houghton

No, Sir William. I am just pointing out the disastrous record of Her Majesty's Government in order to get back sooner or later—sooner, I hope—to the standard rate of Income Tax.

Sir Alexender Spearman (Scarborough and Whitby)

May I interrupt?

Mr. Houghton

Not now. If I do not complete my fourth figure now I may not get the opportunity to do so later, and I wish to complete this by saying that Government expenditure has gone up by £4,300 million a year; an increase of 90 per cent. I ask any Tory philosopher opposite what he has to say to that.

Sir A. Spearman

I ask the hon. Member whether, in order to complete his record, he would add that the rate of growth and capacity to produce is going ahead? In 1951, it was 1½ per cent. and it is now going ahead between 3½ per cent. and 4 per cent.

Mr. Houghton

The hon. Member for Scarborough and Whitby (Sir A. Spearman) is repeating the error of so many of his hon. Friends by trying to compare the painful recovery of our economy from the devastation of war and the higher level of production—[Interruption.] If hon. Members opposite apply their minds intelligently, they will realise that this country was emerging from conditions unparalleled in our history. One could not expect at a time when raw materials were short throughout the world, when our machinery and factories had been turned over to war production and had to be turned back again, that it would not be astonishing if our rate of economic growth was as high as one would hope it would be, and as it has been, in peacetime years afterwards.

When I hear of the Chancellor of the Exchequer talking at Newark about "controlling public expenditure", all I can tell him is that the Chairman of the Public Accounts Committee burst into scornful laughter. If the Chancellor wants any lessons in control of Government expenditure, he should study the Reports of the P.A.C. I am about to relieve your increasing anxiety, Sir William, by saying that if our grossly unfair and distorted tax system cannot be reformed without disreputable attempts being made to create prejudice and even panic, a Labour Government will have to match these political manoeuvres with firm resolve to see justice triumph over political expediency. That is not a threat, it is a promise.

We simply cannot allow this unfair and distorted tax system to prevail in the sort of Britain that we want to see, a system which is full of leaks and loopholes, rackets and avoidance devices. I hope—this is a very humble hope of mine—that a Labour Government will be able to produce a comprehensive and acceptable plan for tax reform. I do not think that it will be very rewarding to attempt to do it piecemeal. What is needed now is a new concept of direct taxation.

4.45 p.m.

I think that a Labour Government should have the courage, in due time, to publish a White Paper to show what their tax reform plan would be so that people can study it and see what is involved in the redistribution of the tax burden, with the usual safeguards in publishing anything of this kind against evasive action. In my personal judgment—I am speaking personally now—I do not think that a Labour Government would set out deliberately to soak the rich, but it certainly would set out deliberately to stop soaking the poor. The economy needs effort, energy, enterprise, initiative and skill and a new tax system should and must encourage all of these. The present one simply does not; I think that the Chancellor must recognise that.

Nor do I shrink personally from bringing Surtax into the review of a reformed tax system. I question whether the need for this can be justified in present circumstances, for it is a very crude and inefficient instrument of taxation. It is largely avoided and the yield from it is comparatively low. I believe that in a more satisfactory system of progressive taxation we could manage without it. But if effort, work and skill are to be relieved of the excessive burdens of taxation—and I think that there is a strong case for reducing the burden of taxation on the middle incomes—then those with large accumulations of wealth and rapidly multiplying capital profits must be prepared to be more forthcoming. This is what equity is all about and it is no good shirking it.

We have to get the revenue somehow and it is a question of how much revenue is needed and who is to find it. It is also important that a new taxation system should be acceptable as fair and equitable because acceptance in all forms of direct taxation is very important indeed. A lot of it is still voluntary taxation. It is important to get the co-operation of the taxpayer. The skill of any tax reformer will lie in co-ordinating greater social justice with the need to stimulate economic growth.

Savings are needed as well as work. Capital formation is needed as much as industrial training and rewards for skill must be brought into harmony with rewards for prudence. No Labour Government will penalise thrift. Thrift is being penalised heavily at present, as the right hon. Gentleman knows if he studies many letters he is getting from distressed holders of undated gilt-edged stock. Thrift is penalised in other directions in our social services. A Labour Government would remove that.

There is nothing disastrous to the nation's economy or well-being in anything that I have said. If there is, I hope that the Chancellor will denounce it and let us hear what his reasons are. It is sheer mischief for him to go to Newark or anywhere else and indulge in the sort of claptrap in which he apparently indulged the other day. We shall offer a new deal, new hope, and a fairer economic taxation system. It is my firm belief that at this very moment the electors of Faversham are saying this is how they want it to be.

The Chancellor of the Exchequer (Mr. Reginald Maudling)

I cannot resist the temptation to follow the hon. Member for Sowerby (Mr. Houghton). I do not think that he could be unkind if he tried—and he tried hard this afternoon, but not successfully. I will try to deal with some of the wide-ranging issues which he succeeded in raising on this occasion.

The Clause, as he recognised, is one which we pass annually to perpetuate this temporary tax, which has been temporary, but effective, for many a long year. That is all that the Clause contains. One of the criticisms which he made was that at a standard rate of tax of 7s. 9d. in the £ we are collecting more revenue than the Socialists collected at a rate of 9s. 6d. in the £. This strange criticism hardly seems in line with the other criticisms about a stagnating economy and lack of growth, for it is the best possible evidence of the health of the economy.

We need large sums of money to pay for the enormous expansion of social services. We hear complaints that there has been no expansion of the social services and that nothing has been done for them, and yet he said how much more money we have to find for the increasing expenditure on education, hospitals and roads, indeed all the social services. They are the reasons why we need the additional revenue provided for by the Clause, and it can be found because a Conservative policy has provided these enormous additional sums in revenue at a standard rate of tax of 7s. 9d. rather than 9s. 6d. What the Prime Minister said in the speech which the hon. Member quoted is true. If we returned to the rates of taxation which we had under the Socialist Government, we should collectively pay about £1,000 million more in taxation than we are paying at present. That puts the position straight in that respect.

I do not think that the hon. Member has much to offer as an alternative to Income Tax. He produced the old argument about the possibility of reducing the standard rate of tax if there were less avoidance and evasion. We are always concerned in the Treasury, in the Inland Revenue and in this Committee to check avoidance and evasion. But I do not think that any serious student of these matters and of the scale and operation of our current direct taxation—and I include the hon. Member among the serious students—would suppose that a further toughening of policy on avoidance and evasion would make any significant difference to the current rates of Income Tax.

The hon. Member raised a question about personal allowances which I think it would be more convenient for the Committee to discuss when we reach the new Clauses on the Notice Paper, when I will go into the matter in detail. He then ranged fairly wide. I was interested in what he said about Estate Duty and gifts. He implied that if one gives something to one's children, one is thereby avoiding Estate Duty. I wonder whether he wants to carry the logic of that to its conclusion. Is he carrying that through to the stage of saying that any gift to one's children should bear Estate Duty? I think that he should make the position clear.

Mr. Houghton

The Chancellor must know the extent by which Estate Duty is being avoided by gifts inter vivos. He must know that other countries have had to cope with this abuse of Estate Duty by imposing a gifts tax.

Mr. Maudling

I take it that the hon. Member is advocating a gifts tax. The point about which he is complaining can be met only by a gifts tax. That is the logic of what he is saying. This may be official Labour Party policy, and it is the logic of his argument. He cannot get away with it as easily as he thinks. He cannot complain about something and then shrink from the remedy. I agree with him that this matter should be argued dispassionately, but if he complains about people giving their sons farms free of duty he must be prepared to say that he will put a tax on someone who gives a farm, or a business, to his son.

The hon. Member kindly referred to my speech at Newark, which seemed to be more the subject of his speech today than was the Finance Bill. I do not complain about this. He was kind enough to give me notice that he would refer to my speech, and I am grateful to him for doing so. I am also grateful for the chance to repeat what I then said—which is that the policy advocated by the hon. Gentleman and his colleagues would be disastrous for the economy of this country. I gave a number of reasons. Some of them I cannot discuss this afternoon, because they would be out of order. I could not, for example, discuss nationalisation, or bulk buying. I could not discuss the preposterous idea of driving down interest rates by pouring out Government money, a policy which led to so much trouble in the late 1940s. None of these matters is relevant and, therefore, I shall not mention them.

But it is proper to refer to rates of taxation and the effect of the Labour Party's policies upon the rates of direct taxation—which are included in the Clause—particularly on industry. I said that the Labour Party was thinking in terms of the punitive taxation of profits, and I repeat that and stand by it. I meant the idea which has been developing this year that taxes on profits should be increased. This would be utterly irrelevant to the economic problems of the present year and positively damaging to the level of investment in industry which we need. If, despite these two facts, the Labour Party still intends to increase the taxation of industrial profits, it can only be for punitive reasons.

I refer now to the speech made by the right hon. Gentleman the Leader of the Opposition in Swansea, on 25th January, when he talked about ruthless discrimination. We have never had that clearly explained. There is a feeling that the people they do not like will be ruthlessly discriminated against—the people whom they think are not doing the right thing or are not being efficient.

Mr. J. J. Mendelson (Penistone)

No one said that.

Mr. Maudling

If the hon. Member reads Labour Party speeches more carefully he will understand what I am saying.

What surprised me was the criticism of investment allowances at this stage by the hon. Gentleman. The Labour Party, I understand, are strong believers in investment allowances and often have advocated increasing them. It is the system of investment allowances which gives rise to some of the difficulties about which we have been talking and of which the hon. Member is aware. He ought to recognise that it would be unwise to put forward solutions to some of the difficulties which would involve the withdrawal of capital allowances if, as a party, the Opposition believe in strengthening them.

The hon. Member talked about a general review of taxation and of company profits, and referred to new forms of taxing wealth. He also referred to what I said about the level of expenditure and the level of taxation under Labour Party policy. We have seen that, as he rightly said, this Clause will extract from the taxpayers a higher overall total payment than ever before. I think that we are entitled to say that, given the policies advocated by the Labour Party, the level would have to be very much higher still, for two reasons: first, the much heavier expenditure which they are advocating; and, secondly, the effect of their policies on savings. I cannot emphasise too often that a reduction in savings is bound to mean an increase in taxation.

Mr. James Callaghan (Cardiff, South-East)

If the right hon. Gentleman thinks that this is disastrous, how does he explain away the failure of his own Government, for example, in relation to Post Office savings? Is he aware that anybody who put £100 in the Post Office Savings Bank in 1959 will find that today it is worth only £85? If that is not a distastrous attack on savings, I should like to know what is.

Mr. Maudling

I will tell the hon. Gentleman what is. What is a disastrous attack on savings is a wealth tax, a capital gains tax as suggested by the Labour Party, its proposals for Government expenditure and its proposals for artificially lowering interest rates. All these are calculated to produce inflation on a scale which could not fail to be disastrous for savings. If one wants evidence, there is no better or more concrete evidence than the dramatic increase in savings under the present Government.

Mr. Callaghan

Does the right hon. Gentleman realise that when the Conservative Party was returned to power, for £100 of War Loan paid one received £100, whereas 12 years later one gets £60 to £65? This is the deprivation of savings about which people are complaining. They are not worried about the possible disasters which he sees. They are complaining about the real loss in their savings which has taken place under the Conservative Government.

Mr. Maudling

I am well aware that the purchasing power of the £ has fallen in the years of the Conservative Government, but I am also well aware that it has fallen a great deal less than it did under the Labour Government. But what is fundamentally important is that the level of savings has dramatically increased in these years and remains extremely high. The possibility of maintaining the current level of public expenditure at this level of taxation, and without going higher, depends entirely on maintaining the level of savings.

I will reply to the hon. Member for Sowerby, who referred to my speech at Newark: I stand by everything I said, and I welcome this opportunity of repeating it, as I and my colleagues will continue to do until the General Election.

Mr. Douglas Jay (Battersea, North)

Would the Chancellor of the Exchequer answer one other question? If he regards he proposal for a wealth tax in particular as so disastrous, why, as Chairman of the National Economic Council, did he put his name to this proposal? Does he deny that he is Chairman of N.E.D.C.?

Mr. Maudling

Of course not. N.E.D.C. is a tripartite body—Government, management and unions. It would be wrong for me, as Chairman, to try to exercise a veto over the consideration by N.E.D.C. of any matter. I do not agree that the wealth tax would have the suggested effect. But I cannot say to N.E.D.C., "Because the Government do not agree with this matter, you must never discuss it or put it forward as a possibility".

Mr. Jay

Does this mean that the Chancellor does not take responsibility for reports which are published by N.E.D.C., he being the Chairman of the Council?

Mr. Maudling

It is well understood that neither the Government, nor the unions, nor the employers, are bound by every word in a report made by the Council, unless they specifically say so. Otherwise N.E.D.C. would make no progress. If the right hon. Gentleman thinks about this he must agree, if he wants N.E.D.C. to succeed. One party cannot have a veto over every word of any document put forward by the Council. This document said collectively, on behalf of the Council, that a wealth tax was a possibility to be considered. I agree that it is a possibility. I myself think that it is all wrong, but I shall not stop others from considering it if they want to.

5.0 p.m.

Mr. J. T. Price (Westhoughton)

My hon. Friend the Member for Sowerby (Mr. Houghton) has most effectively and very ingeniously deployed a number of considerations in this debate on the Question, "That the Clause stand part of the Bill". I agree that this seems to be the only opportunity that some of us will have to develop in detail our arguments on a number of matters which strike us as paradoxical in our tax system. To my mind, nothing was more justified than the remarks directed by my hon. Friend a few moments ago to the gross disparity which exists between the almost 100 per cent. effectiveness of P.A.Y.E. taxation on the small taxpayer and the wide-open gateways which exist for evasion of tax by large taxpayers.

Nothing is better known or more clearly realised by intelligent people, even intelligent people who are themselves profiting from the system, than the tremendous advantages which are enjoyed by those in possession of ample expense accounts. Most intelligent people and most business firms, even firms of the highest reputation, against which I level no charge of impropriety but which nevertheless take advantage of every loophole in the tax system, know that the expense account racket is part and parcel of the system of attracting labour at the higher executive level.

It is well known that many firms are in the racket of providing either Mercedes Benz or Rolls-Royce cars, whilst at other levels of employment firms are known to provide Rovers or Jaguars, and perhaps cars of lesser quality. These are gimmicks. They are incentives which are used freely in the business world to attract people who are wanted at certain levels of administration.

I should be the last hon. Member of the House to argue irresponsibly that we do not need people of the highest calibre to improve our industrial efficiency. The Labour Party has never stood in the way of the greatest encouragement being given to higher efficiency in our industrial system.

However, some of us are often, in our capacity as leaders of industrial labour, asked to discourage irresponsible action in industry, which sometimes occurs, much to the regret of all of us. It sticks in our crop when we know that the industrial morale of many of our people is being undermined by the glaring disparity which exists between those in the expense account racket and the ordinary person who is paying every penny of tax which Parliament levies on him.

It is a racket. The Chancellor of the Exchequer has sufficient integrity and intelligence, which we freely acknowledge, to know that this is going on. Some of his predecessors stonewalled on the issue for many years. They refused to tighten up the things which have been tightened up a little in recent years. Much more tightening up is needed if we are to give the impression to the ordinary people that the taxation system is fair and is operated with equity by the House of Commons.

Perhaps I should not have allowed myself that little outburst, but I have said what I believe to be true. I believe that it should be said in the Chamber with vigour and sincerity.

As I shall be deprived of the opportunity of doing so later, may I refer now to a lesser subject but one which affects many people? The matter was referred to incidentally by my hon. Friend the Member for Sowerby. For some reason, new Clause 6—"Income tax: exception in respect of certain widows' pensions"—is not to be called. I suppose that I am not entitled to query the discretion of the Chair.

The new Clause refers to one of the most ridiculous and idiotic paradoxes which exists in the tax system. It can no longer be justified. I do not think that it has ever been debated in detail in this Chamber. Widows who are in receipt of pensions for the loss of their husbands are under the ignominious penalty and disadvantage of having those pensions assessed for Income Tax purposes under Clause 12, or whatever rules apply to them.

Is the Chancellor prepared to make a serious note of this? I am not raising the matter frivolously or for any small advantage. Members, regardless of party, have always agreed that Service pensions should be tax-free. Ordinary Service pensions are not aggregated with other in come for tax purposes. What about widows' pensions? If a widow has had a husband who was maimed and received a tax-free pension at the appropriate rate under the Royal Warrant—

The Temporary Chairman (Sir Samuel Storey)

Order. I do not think that we can discuss new Clause 6 in detail on this Question. Passing reference to the new Clause is perhaps in order, but not a full discussion of its details.

Mr. Price

I will try to respect your Ruling, Sir Samuel. I am only mentioning a matter which was referred to incidentally. It is a matter of importance. The trouble arises only when the status of the pension is changed. As soon as such a husband dies, perhaps from his war injuries, the pension his widow receives is subject to tax. This is a paradox which cannot be justified or defended by the House of Commons.

I plead with the Chancellor of the Exchequer to review this matter and give us some reply to it. This applies also to widows who receive pensions under the Industrial Injuries Acts, because those pensions are assessed for Income Tax purposes. There is this strange contrast between the great mountain of tax-free capital gains and tax-free expense accounts on a most lavish and extravagant scale and the number of small people whose pensions, which were perhaps earned for injuries received in the service of this country, are subjected to the rigours of the tax law.

I will not irritate you, Sir Samuel, by developing this point any more. I believe that I am entitled to raise it in the way I have done. I strongly support the criticisms which have already been advanced.

Mr. Graham Page (Crosby)

I hope that my right hon. Friends on the Treasury Bench will take note of what the hon. Member for Westhoughton (Mr. J T. Price) has said about war widows' pensions. This is a point which needs consideration. I will not go further than that, because I am afraid, as was the hon. Gentleman, of getting out of order. Yet I am encouraged by the way in which the hon. Member for Sowerby (Mr. Houghton) kept in order in his journey from Somerset House to Trafalgar Square fountain, down Whitehall, on to the Serpentine, thence to a farm in Tewkesbury, and on to Newark. The hon. Gentleman kept in order all the time. I think I can keep in order on the much narrower point I wish to raise. It is much closer to the Clause than the hon. Gentleman was at times during his speech.

Before I come to that point, I wish to refer briefly to one comment made by the hon. Member for Sowerby. He said that my right hon. Friend the Chancellor of the Exchequer talks political drivel outside the House of Commons. With all due respect to the hon. Member, he himself succeeded in talking political drivel inside the Committee this afternoon. It cannot escape the notice of anyone that the standard rate of tax in Clause 12 is 7s. 9d. as compared with the standard rate in 1951, under the Government of his party, of 9s. 6d. It cannot have escaped the notice of anybody that since 1951 millions have been relieved of Income Tax altogether [HON. MEMBERS: "No."] It is the fear of the public that if the party opposite had charge of the Budget on this occasion we should be returning to a standard rate of 9s. 6d. in the £ and those millions who have been relieved would be put back on Income Tax. Those who are saving—and the savers have increased tremendously over the past dozen years—would be deprived of their savings, as they were under a Socialist Government, at twice the rate of inflation which exists under the Conservative Government.

I turn to the one rather narrow point to which I wish to draw the attention of the Committee.

Mr. Callaghan

As political drivel seems to be the order of the day, would the hon. Member mind withdrawing his statement that there are more people now relieved of tax than there were in 1951? Will he refer to the Annual Report of the Commissioners of Inland Revenue, where he will see that this is quite untrue? There were more people exempt from tax in 1951 than there are today.

Mr. Page

So far as incomes are concerned, more have been relieved of tax since 1951. The lower income groups have been relieved of tax.

Mr. Callaghan

The hon. Member is quite wrong and he should acknowledge it. So far as I know, he has not the figures in front of him and I have. There were more people exempt from tax in 1951 by the operation of the allowances than there are today. This has been the basis of my complaint year after year to the Chancellor, and that is why I have put down these Amendments. The hon. Member seems to think that the Chancellor has done what he should have done, but he has not, and it is high time that the exemption limits were put up again.

Mr. Page

The hon. Gentleman is quite right in taking overall numbers like that, but more people as a result of more earnings and the increase in the standard of living have come within the higher taxation groups.

This Clause provides for Income Tax for the year 1964–65 to be charged at the standard rate of 7s. 9d. in the pound. I want to draw the attention of the Committee to circumstances where in fact that will not be charged, despite this Clause, although it was charged in the past. I refer to the deduction of 7s. 9d. in the pound from ground rent. This is a narrow point, but it is producing a certain amount of hardship on people of very small means.

Prior to last year's Finance Act, the ground lessee was assessed on the ground rent which he paid. It sounds rather anomalous that the income payer was assessed and not the income receiver, but as a result the ground lessee was entitled to deduct 7s. 9d. in the pound when he paid his ground rent. Many ground lessees in my constituency, and I have no doubt in the constituencies of other hon. Members, are people of small incomes, living in small houses on a ground lease. They are not liable to Income Tax at all. They deducted the 7s. 9d. in the pound from the ground rent when they paid it and they were not called upon to account for that sum to the Chancellor.

There was nothing immoral in that. This system of assessing the payer was a convenient way of collecting tax, and the Inland Revenue had to put up with the defects of that system because of the great advantages of it in the collection of the tax; so there was nothing immoral in the ground lessee not accounting for the 7s. 9d. in the pound which he had deducted according to the standard rate.

5.15 p.m.

The result is, for example, that for years the ground lessee who was liable for £5 ground rent discharged his liability by paying £3 1s. 3d. to his ground landlord—if my mathematics are right. The Finance Act, 1963, repealed the sections which assessed the ground lessee or required him to deduct the 7s. 9d. in the pound, mentioned in Clause 12, from his ground rent. He now is faced with the position of paying that ground rent in full to his ground landlord.

Since 1963, he finds himself paying somebody 7s. 9d. in the pound, and unfortunately he blames my right hon. Friend the Chancellor for making him pay this. It is right, I think, although this is the narrow point, that the Committee should know that some who can ill afford this, although it may be a small amount, are now paying 7s. 9d. in the pound which they did not have to pay previously. I ask my right hon. Friend to consider if he can give them some relief. They are the people of very small means who can ill afford even a matter of a pound or two in this way. I wonder whether he can restore them to their previous immunity from the standard rate of 7s. 9d. in the pound.

Mr. Cyril Bence (Dunbartonshire, East)

I rise partly to meet the point raised by the Chancellor of the Exchequer who made so much play about the tremendous increase in savings out of increasing incomes on which 7s. 9d. in the £ is charged since 1951. We have had inflation since 1945; in fact, since 1939. We have been going through the process of the fall in the value of the units of currency in every country. It would be a frightening situation if, in the processes of the fall in the value of money, there was not in our industrialised community an increase in savings. In fact, we should be in complete stagnation if at the same time that the value of money was falling there was no increase in the quantity of money in circulation and being saved. The one goes with the other.

This is an inflationary cycle—higher incomes, higher savings, higher expenditure, higher prices. This is due to the fall in the value of money, and this is the inflationary process. I am surprised that the Chancellor should put it as a serious argument that it is the symptom of the great success of our economic order that there are more savings. More savings are partly the result of higher prices and the fall in the value of the unit of currency.

I do not want to use this as a political stick to beat anybody. In every country in the world there is this inflationary process and the fall in the value of money, which, in a way, lessens the burden on any community and any individual. I believe that the tragic consequences of deflation would be much worse than the modest inflation which takes place in contemporary world economies. Therefore, I think that the Chancellor is indulging in political claptrap wren he tries to make the political argument that he has made today.

Mr. Maudling

The fact is that savings have increased many times over in real terms.

Mr. Bence

This, of course, is true in the economies of Western Europe and the whole of the modern world where science and technology have been brought to bear. As one who has been in engineering all his working life, I should be disappointed indeed if, as a result of all the science and technology of the last 60 years, people engaged in all those processes were not able to acquire more personal satisfaction for themselves and at the same time build up a greater reserve of savings. I should be very disappointed indeed of any equality in our civilisation if there were not this sort of natural increase in the personal wealth and general well-being of the whole society. Therefore, to bandy about this sort of argument is just a waste of time. It is sheer political claptrap and has no bearing whatever on how best we can organise our affairs to get the best out of our productive effort.

On the question of the burden of taxation, generally speaking the proportion of taxation to income is the same in 1964 as it has been for some time. It is surprising that in whatever field we operate, whatever the proportion of taxation, direct and indirect, and the relation of incomes in the different groups of our society, the differential remains very much the same. Sometimes I think that it is because there is a sort of inbuilt stability in these differential relationships which prevents us from achieving the results which we might otherwise achieve.

I want now to come to the matter of the 7s. 9d. tax which my hon. Friend quite correctly said is not an effective figure of taxation. As I have said so many times, there is a difference between those who use a firm's car and those who run their own car. I have heard it said in factory after factory that when a man had a firm's car made available to him it represented so much being added to his annual income. Those of us who ran our own cars paid for them ourselves. Perhaps they were secondhand cars, but we got no allowance for running them. The only difference between the car which we used to travel to and from work and the car which the top executive ran was that the car which I or other workers had could be taken abroad on G.B. plates whereas that used by the top executive could not. He could not take his car abroad because he could not get a green card because the car was provided by the company as a gimmick, as my hon. Friend described, to increase his income.

The workpeople of 1964 are not the same as the workpeople of 1864. They know that this sort of thing is going, on and that in some factories there is a fleet of 60 to 100 cars which are at the disposal, free of charge, of executives of a certain position upwards. They receive different cars according to their different status. The man at the top will have a six-cylinder car costing up to £2,000. I forget the actual figures, but I think that it was 60,000 miles or three years, whichever was the lowest, before the man qualified for a new car.

Mr. H. Rhodes (Ashton-under-Lyne)

This practice is spreading. It is not just confined to managers, higher executives and the like. It is now spreading to workers and is part of the wage system. A worker can now go to a factory a few miles away and get free petrol from the pump. This is happening all the way through.

Mr. Bence

I am surprised to hear that. I have known the practice apply down to departmental managers, but I do not know of one case where it has come down to chargehands or foremen who get a car or even get petrol free at the company's pump. I have had no personal experience of that. My hon. Friend is probably right, and in Yorkshire the practice may be spreading.

This is a very serious matter in factory units. Men resent it. True, we used to get some little quid pro quo; we could get a few repairs done internally one way or another. This was a sort of compensation or perquisite for being a skilled man. I can tell the Chancellor that there is strong resentment throughout the country at this practice. A lecturer at a university, perhaps in medicine, or a research worker, at a salary of £1,700, £1,800, or £2,000 a year, does not get a car. He is a man who has graduated. When he goes into the employ of a big company he receives his salary plus a car, which is worth about £200 a year to him. Why divide the people in scientific and technical grades in the country into two groups of people? Those who enter some of the professions, especially those professions in which we need men very badly, such as in technical and scientific research, receive a nationally agreed salary. They pay their Income Tax at the rate of 7s. 9d. in the £. They only have their personal allowance and they pay their tax under P.A.Y.E. They cannot dodge paying their tax in any way. Yet when they go into factories to advise administrators, engineers and scientists they find that their associates are getting much greater salaries plus a motor car.

Mr. Kenneth Lewis (Rutland and Stamford)

Will the hon. Gentleman make it clear that where people have cars which are used for company purposes the personal use of that car is written back against their income? They are, I think, charged by the tax man for this. That is the first thing. My second point is, does the hon. Gentleman propose in due course to introduce a Bill to do away with the use of cars for company purposes? Will he get the support of his right hon. and hon. Friends on the Opposition Front Bench for that?

Mr. Bence

I am not speaking for my Front Bench. I am expressing my own views. I am not a tax or financial expert. I have only one expertise in the narrow engineering field, but I am applying my argument to taxation of 7s. 9d. in the £. Therefore, I will leave the point which the hon. Gentleman raises to the experts in the matter to deal with as they see fit.

The people who get these cars also get their petrol and the licence for the car. They are, in fact, having set off against their income the means of travelling to and from work. This is ridiculous. I have known cases of two people living next door to one another, one of whom is a foreman and has a car paid for by the company in which to travel to and from work. He is allowed sufficient to enable him to use it for his fortnight's summer holiday as well. The fellow next door is not a foreman but he also has a car. In his case, however, he has to pay for it himself. He gets no allowance for running it. So long as this practice goes on, the supplying of cars on company account, then I suggest that with the growth of housing estates and with people being moved into new towns from our city centres, everyone who has to travel from home to work should be able to set the cost of running a car against his income.

Mr. John Hall (Wycombe)

Would not the hon. Gentleman agree that in the cases that he has in mind where workers have to travel considerable distances to work, probably from new housing estates, some firms in these days are having to send buses to fetch them to and from work and are having to pay the cost of that travel?

Mr. Bence

I did not know that that was so, but if it is good enough to do that why not permit the individual to set against his income the cost incurred in travelling from and to his place of work? After all, the executive who has a motor car provided for him by the company is, in a negative way, getting an allowance to run the car. The hon. Gentleman says that some firms are hiring coaches to bring in their work people. This is done in remote places. This being so, we should introduce into our taxation system further allowances so that people may set their cost of travelling to and from work against Income Tax.

5.30 p.m.

Something of the kind I am suggesting occurred during the war when, under the Emergency Regulations of the day, the Ministry of Labour made an allowance of about 30s. a week to people who had to travel some distance to work. Workers know that the present 7s. 9d. standard rate is not really being collected. It is in theory but not in practice, because there are many gimmicks, the motor car being one, for getting round it.

My fare to Glasgow from where I live was 4d. when I first moved to the district. It is now 11d. Fares which used to be 1s. 3d. are often now 3s. 6d. Apart from increases in fares, people are living further out from the cities and are having to travel further distances to and from work. The burden of travel is becoming heavier, financially and in other ways, all the time, and I hope that since the Government are anxious to move people and industries out—

The Temporary Chairman

Order. The hon. Gentleman is getting wide of the question of Income Tax allowances.

Mr. Bence

I have been discussing it only because the matter was raised. Some hon. Members are expert at getting all sorts of things discussed. I am not expert in doing this and must wait for matters to be raised before being able to speak on them. Suffice to say that I hope that this or a future Chancellor will examine the possibility of extending travelling allowances to work people generally.

Sir Henry d'Avigdor-Goldsmid (Walsall, South)

We have had a far-ranging debate on the rather fragile peg of the 7s. 9d. rate of Income Tax. The hon. Member for Sowerby (Mr. Houghton) is very much responsible for it having ranged wide. We always enjoy his contributions in Committee. Today he was in good form, but I was rather surprised to hear him complain, when he produced his views on tax reform, that they should be branded as politics. He should remind himself, it being some years since he left the higher reaches of the Inland Revenue, that politics is what we are all here for, and he should not take it amiss that some of his remarks may be characterised as politics.

Mr. Callaghan

My hon. Friend is never political about anything as serious as Income Tax.

Sir H. d'Avigdor-Goldsmid

On both sides of the Committee we have a vested interest in the maintenance of savings. This is not a party issue, and I regret to say that this subject has been misused in the debate today. Personal savings are fundamentally a question of personal choice. The person who saves has at the same time plenty of opportunity for spending. If he makes a personal decision to save, it is because he is reasonably confident about the safeguarding of what he is putting aside. It was misleading of the hon. Member for Cardiff, South-East (Mr. Callaghan) to draw attention in his intervention a short while ago to only one stock, the 3½ per cent. War Loan, which, owing to the original conditions on which it was issued, has gone in many cases to the small saver who should never have had it.

One can never blame the Front Bench of either side that in respect of savings schemes produced since 1939 people have fallen into that trap. In other words, the small saver in any savings he has put aside since 1939 has had the cash value absolutely guaranteed. In his anxiety to make a political point the hon. Member for Cardiff, South-East rather cast doubt on the efficacy of the various savings schemes we have before us. I still say that it is inescapable that savings are a matter for personal choice. If people decide to save it is because they consider that their savings are safe. Therefore, it does not help the interests of either side of the Committee for the hon. Member to refer to the 3½ per cent. War loan in the way he did, remembering that it stands at a very much lower price. There is no holder who has not either bought it at a discount or had a chance of selling it at a premium. I agree that in some respects it is a stone around our necks. Nevertheless, we are responsible for the finances of the country and I am sure that the difficulties of this stock will not recur.

I was interested to hear the hon. Member for Dunbartonshire, East (Mr. Bence) refer to a number of tax avoiding activities. When there is a high rate of Income Tax it is obvious that tax-free benefits are bound to be sought, not by any level of employee but by all. This applies not only to luncheon coupons—which, incidentally, are not available to directors—but to anything else. They are all benefits.

Having listened with interest to the remarks of the hon. Member for Sowerby, if he wants to reallocate the tax burden he must, I would remind him, still raise the same sort of revenue, for I did not hear him say anything about raising less revenue by any reallocation of the tax burden. If he feels that the tax burden is being placed too heavily on the earner and intends to reallocate it, he must, in doing so, place a heavier burden on companies. Will that not be the same form of punitive taxation? If not, I do not know what he means. If he wishes to make a massive change from the earner to companies, the companies are not going to let that go for nothing. They will be bound to make a great deal of propaganda to the effect that that must reduce their possibilities of attracting future investment. I have no doubt that the position is being thought out, but it should be clearly put on the record as to the extent of the relief the private taxpayer will get and the additional amount companies will have to carry in future. This is an unexpected but none the less welcome debate. It is rather interesting, however, that on this subject of a tax introduced by Mr. Gladstone, although the Liberal Party was here in full strength at Question Time, none of its members has found it appropriate to be present at any time for the subsequent debates.

Mr. Callaghan

I intervene at this stage in order to put a question to the Chancellor, and also to respond to the very courteous remarks made by the hon. Baronet the Member for Walsall, South (Sir H. d'Avigdor-Goldsmid). The hon. Baronet, like my hon. Friend the Member for Sowerby (Mr. Houghton), thinks about these matters in largely non-political terms, and it might be possible to get a rational debate on such matters as a gifts tax, or a wealth tax, or a tax on capital gains, or the other ideas put out by one or other of them. Unfortunately, the hon. Gentleman's Front Bench does not think in the same way, and I must admit that I do not either.

The hon. Gentleman says that I am in danger of casting some doubts on the efficacy of our savings system and that this is something above and beyond party. That is the sort of cliché uttered in the House but completely ignored by Tory propagandists outside. We are facing a campaign, from the Prime Minister downwards, to prove to the country that the effect of the election of a Labour Government will be disastrous to savings—

Mr. A. E. Cooper (Ilford, South)

. Hear, hear.

Mr. Callaghan

The hon. Member for Walsall, South will now see what he is dealing with. He is not dealing with an issue beyond and above party but with a situation in which the hon. Member for Ilford, South (Mr. Cooper) genuinely believes that the election of a Labour Government will wreck our savings system. Not only does the hon. Member think that, but the Prime Minister thinks it, too. The Chancellor, of course, knows better, but I do not believe that either the Prime Minister or the hon. Member for Ilford does. When the Prime Minister sent his message to the unsuccessful candidate at Rutherglen, he put at the beginning of it that the election of a Labour Government would mean a disastrous attack on the people's savings. The people of Rutherglen ignored what the Prime Minister said.

In this context, I am entitled to say, and to repeat, that the actions of Conservative Governments during the last 13 years, have been disastrous to the holders of certain savings. We do not have to look into the crystal ball when we can read the book. The simple truth is that anybody who put £100 into the Post Office Savings Bank in 1952 would have drawn a full 2½ per cent. each year since, but in terms of purchasing power that £100 would be worth only about £65 today. Anybody who was fool enough to put £100 into the Savings Bank at the beginning of the Tory Administration has now lost £35. If that is not an attack on the small man's savings, far transcending any attack that could be made by a Labour Government, I have yet to recognise one—

Mr. K. Lewis

What about Daltons?

Mr. Nigel Birch (Flint, West)


Mr. Callaghan

The right hon. Gentleman has a reputation for saying very bluntly what he thinks. He can say it when I have finished, and I shall not mind.

Any one who purchased 3½ per cent. War Loan in 1951–52 would now find that it is down to—I have not looked at the price for the last day or two, but I suppose that it is about £59. I do not know whether hon. Members get the representations that I get—and I get them now addressed to 11, Downing Street, and the Chancellor is good enough to send them on to me. Perhaps I should not have said that, because this is a serious matter. Everyone who has seen such letters knows what some holders of this stock have experienced, and recognises that there has been much hardship in this field and that a great many people who bought—some for patriotic reasons—the 3½ per cent. War Loan—and I do not now talk of the large institutions, but of the small people who have put the story to me—have lost over the last 13 years some 30 per cent. or 40 per cent. of their capital.

5.45 p.m.

I put this for the moment on a non-political basis, but I warn hon. Members opposite that if they intend to say that the election of a Labour Government will mean a disastrous attack on the savings of the people they will have these facts rammed home. People know them to be true. They know that there has been this loss of savings, and loss in the value of savings. What hon. Members opposite are doing, and they will not get away with it in the next few months, is to attempt to hide behind the small people and try to persuade them, or terrify them or frighten them in order to prevent any attack being made on the large-scale evasions that are taking place.

If that is the basis on which this battle is to be fought, I must tell hon. Members opposite that every one knows that our taxation system is now operating unfairly. No one can deny that there are large-scale undertakings which, through manipulation of the tax machine—and legitimate manipulation of the tax machine—on which the Public Accounts Committee reported to the Chancellor only a few months ago—are able to make millions of pounds on tax, whereas every P.A.Y.E. man who suffers deduction of tax at source is compelled to pay every penny.

Today we have had a Report from the National Incomes Commission pointing out the serious effects on the economy that will ensue if the wage drift in the engineering industry persists. I have no doubt that the Commission is quite right. It says that it did not discover this, but it is astonishing that it should write with such freshness about it when every trade union negotiator and every employer has known about it for years—it is one of the basic difficulties in getting an incomes policy.

I only wish that we could have the same examination made of the level of company profits in some of these industries. Why is it always on wages that this is based? When the plumbers' wages were referred to the National Incomes Commission, the Commission asked employers to provide evidence of profits. That was over a year ago. It wanted to be able to test the validity of the claim that profits were too high. Did the N.I.C. get any co-operation? The Chancellor knows the answer as well as I; the employers refused to produce to the Commission the evidence of profits.

How is it possible, in those circumstances, to get a proper incomes policy? How is it possible to get a feeling of fairness as between all parts of the community if there is this sense that there are some sections, made up of large companies which are able to make substantial sums—I will not mention any names—without paying a penny of taxation, either through manipulation of land purchases and sales or in other ways and, on the other hand, the wage earner who is being chased the whole time?

I happen to take this incomes policy question very seriously. I do not say that the Chancellor does not do so, but that is why I am astonished by his complacency. My hon. Friend the Member for Sowerby asked a question at the beginning of his speech that we have asked about five times. The Chancellor has not answered it today, and he has not answered it before, so I shall ask him again. Case VII provides for the collection of a speculative profits tax. It was passed last year. In his Budget estimates for the current year, the Chancellor has shown a gross sum for the collection of Income Tax, including Case VII. I repeat the simple question my hon. Friend has asked: Why does the Chancellor refuse to state what sum has been included in that total for the speculative profits tax? The right hon. Gentleman must know. He cannot possibly say that he does not. He has a total, and he must have made that total from a series of individual totals.

What is the individual total for the speculative Profits Tax? This goes side by side with incomes policy. We were told in 1961 by the present Leader of the House when he introduced the pay pause that the other half of it was the taxtion of profits and it was out of his statement in July 1961 that Case 7 of Schedule D was introduced. Here we are three years later, and the Chancellor is unable, unwilling or too ashamed to tell us. Why has the answer not been given? I will give way to the right hon. Gentleman if he cares to tell us.

Let me put a series of direction questions to the right hon. Gentleman. He must agree that he has a total estimate of the Revenue from Income Tax this year. Apparently he is not going to give me yea or nay, but I appeal to the rest of the Committee that this is generally agreed and that that total is made up of the total collection from Schedules B, C, D, E and other sources of revenue. I assume that within Schedule D it is made up of a collection of the total from the Cases up to Case 8. I therefore assume that the right hon. Gentleman has a total for Case 7 and that that is the amount which he expects to collect from the speculative Profits Tax.

Either the right hon. Gentleman does not know or he is too ashamed to tell the Committee what that total is. I suspect that it is the latter reason and that the amount of revenue to be derived from the speculative gains tax is so infinitesimal that he dare not tell us because it will throw into extraordinary relief what is moving through the National Incomes Commission on to the trade unionists and what is being exacted on the other hand from those who are making almost untaxed capital gains. This is a serious point to which the Chancellor should reply, and it is no use saying that we do not yet know the figure.

The amount of Government waste, which we have debated in the House of Commons before, has a substantial effect on the rate of Income Tax. There is, for example, Government waste on missiles. If we had avoided that waste the rate of tax this year would not be 7s. 9d. but 7s. 3d. in the £. The Government must take their share of responsibility for that. People are having to pay more in taxes because the Government have wasted money. We have had no result from it and no weapons from it; nevertheless we have to pay for it.

It should be understood that this Government, through the failure of their economic policies, have deprived the people who invested in certain forms of savings of a substantial part of their capital and that the Government have brought considerable hardship to those people. It should be understood that the Income Tax system operates unfairly as between those assessed under Schedule E under P.A.Y.E. and those assessed under other Schedules. It should be further understood that the waste of Government expenditure has resulted in a higher rate of Income Tax being payable than otherwise would be the case.

It is on that basis that the Chancellor should have dealt with the case made by my hon. Friend the Member for Sowerby. He should not have ridden off on a wave of complacency when he indicated that he had nothing to offer and no way of redressing the grievances which are deeply felt by those who are paying under the system. The sooner the right hon. Gentleman leaves it to others to at least try to do something to remedy the situation, the better for the people of this country. I give way now to the right hon. Gentleman if he cares to reply.

Mr. Birch

The hon. Member for Cardiff, South-East (Mr. Callaghan) might have looked a little further back. One of the reasons why there has been this heavy fall in gilt-edged securities—and I entirely agree that it has had a grievous effect on many people—was the Daltonian money policy of the late Labour Government. The hon. Member may remember that holders of local loans at 3 per cent. were forced to convert to 2½ per cent. irredeemable securities, which I think I am right in saying had fallen by 39 per cent. by the time the Labour Government went out of office. That was the quickest loss anybody could have had on any security. It was an enormous capital loss during Labour's period of office. As for a wages policy, the line of hon. Members opposite always is that if only we were beastly enough to business there would be no difficulty at all in having a wages policy.

Mr. Callaghan

Oh, no!

Mr. Birch

Hon. Members opposite anyway say that the way to do it is to be beastly to business. What was the position when they left office? The highest rate of tax was 19s. 6d. Income Tax was 9s. 6d. in the £. Profits Tax on distributed profits was so high that though there was not officially a dividend freeze there was one very nearly. Purchase Tax was at the highest rate, including 100 per cent. on such things as lipstick. There had to be a special exhortation to the workers to "support your own Government". In the last year when Labour was in power the late Mr. Gaitskell was begging the unions to co-operate. Price control was in force. Wages went up by 10 per cent. and prices by 12½ per cent. These various attacks on business are simply not relevant to a wages policy. What is relevant is to remove the obstacles to growth so that we can have a decent regular rise in the standard of living. The relevant point on savings is that when the party opposite left power personal savings were £100 million a year and now they are £2,000 million, and therefore somebody has been saving something, despite all those troubles.

Mr. John Mackie (Enfield, East)

We are not all agreed whether or not Income Tax is fair, but I think that we are all agreed that through no fault of yours, Sir Samuel, the order of speakers in the debate has been unfair. The hon. Member for Flint, West (Mr. Birch) comes bursting into the Chamber—

The Temporary Chairman

Order. The hon. Member must not criticise the calling of Members.

Mr. Mackie

I obviously did not criticise. I said that it was no fault of yours, Sir Samuel.

The right hon. Member for Flint, West mentioned savings which have been mentioned earlier in the debate. One point which has been missed out concerns the hire-purchase debt. I knew that the hire-purchase debt is supposed to represent forward savings. The debt is today between £900 million and £1,000 million, and to be fair we should subtract that from savings before arriving at the net figure. If that is done, it will be found that the savings are not quite as good as some hon. Members try to make out.

I am sure that we are grateful to my hon. Friend the Member for Sowerby (Mr. Houghton) for what he has said on the question of some change in the method of taxation and particularly on the difference between P.A.Y.E. and a tax on profits. I should like to give my own experience of how this hit me when I became a Member of Parliament. I started work in 1926 at £40 a year plus my keep and I did not pay tax until I made farm profits just before the war. It was not until I had a Parliamentary salary that I realised the difference between the situation when one has the money oneself and, as my hon. Friend the Member for Cardiff, South-East (Mr. Callaghan) has said, one is able to manipulate it legally, and the situation where the tax collector gets in first and the tax is knocked off under P.A.Y.E. Undoubtedly, there is gross unfairness in our taxation system, something which I did not realise, as I say, until I got my first salary here five years ago.

6.0 p.m.

With reference to allowances, manipulations and so on, motor cars in particular have been mentioned. The hon. Member for Rutland and Stamford (Mr. K. Lewis), who has just left the Chamber, pointed out that, if a person uses a business car for private purposes or for purposes other than the business, he has to pay. But, of course, he knows the system as well as we all do. A man puts in a certain figure, the inspector of taxes says that it is not enough, and they split the difference or argue about it. The inspector is most lenient. Everyone knows that it is a tremendous advantage to run a business car and have it for use for other purposes, an advantage which ordinary people do not have, and it is ridiculous to suggest otherwise.

I am a farmer and I get perquisites which are not taxable. I am very grateful for them. My farm workers get them too, but they and all other workers see what is going on and are led to look for loopholes which they can use. For example, a man can go and work overtime for another employer up to £25 a year and it will not be returned for tax. A few years ago, the limit was more than £25; I am not sure that there was a limit at all. Now, at any rate, any employer who pays £25 or more to anyone in a year must return it, so employees are making absolutely sure that they do not work for more than £25 for any one employer. I think that this is correct under the regulations.

The point is that the unfairnesses in our taxation system are, as it were, percolating down to everyone, and this is one of the great arguments for a change in the system. As my hon. Friend the Members for Sowerby said, I hope that, when this party comes to power in October, the matter will be taken strongly in hand.

The Chancellor makes light of how much could be raised by a capital gains tax. He is always saying this, and, in spite of the questioning which my hon. Friends constantly direct at him, he gives no other answer. For the edification of the Committee, I shall read an advertisement which I cut out of The Times the other day. It is headed, How To Raise Money On Property", and it reads: Six years ago Mr. A went into property with £1,250 of his own. He's now worth £1 million plus. Does any hon. Member really think that that man should not have paid tax on that income of nearly £200,000 a year for six years? The advertisement goes on: The London Property Letter covers his case and others in a clear-eyed look at the art of buying property without really having capital. It tells you how much you actually need. And how to raise the rest. It views the values of 'gearing'. Casts a cold eye over 'booster contracts'. Tells how to live with Local Planning Authorities. And how to find finance for that villa in Spain. The LPL, Britain's most authoritative property journal, puts the whole business of property finance into perspective. Send 5s. now for this issue of property finance. Or 6 gns. for full membership (24 issues and special benefits).

Sir H. d'Avigdor-Goldsmid

If instead of reading that particular paper the hon. Gentleman had turned to one which gave him the winners of greyhound races or horse races, he might for a modest investment have been offered the possibility of wealth on a comparable scale on which he would have been in no danger of paying tax at all.

Mr. Mackie

That seems to be a completely irrelevant interjection.

We all know what is happening. We know how much money is being made in the buying and selling of land. The Chancellor is quite wrong when he says that he would raise only "chicken-feed" by a proper capital gains tax. I emphasise again the necessity for change in our taxation system. Otherwise, we shall get everyone going deeper and deeper into all sorts of avoidance devices, creating a moral situation in this country which would be deplorable.

Mr. A. E. Cooper (Ilford, South)

The hon. Member for Cardiff, South-East (Mr. Callaghan) spoke a lot about savings. He really does talk the most appalling economic nonsense, and the sooner he goes back to Oxford for his weekly lessons, the sooner he may come back—it will probably take a few months—and know something about the A.B.C. of the subject.

Mr. Birch

The hon. Member for Cardiff, South-East (Mr. Callaghan) has been far worse since he had his lessons.

Mr. Callaghan

I should just like to say that it is all a complete myth anyway.

Mr. Cooper

As my right hon. Friend the Member for Flint, West (Mr. Birch) pointed out, the record of savings when the Labour Government were in office was quite deplorable. We have no reason to hang our heads in shame for the record of savings under Conservative Governments. Only £100 million was all that could be mustered under the Labour Government, and, even taking into account the change in the value of money, the difference between £100 million and £1,800 million a year is very great indeed. But this, of course, is only the beginning of the story. Saving is not just a simple matter of £ s. d., investment in the Post Office, in War Savings or War Loan. There are other more tangible savings which, even with inflation, retain and, perhaps, improve their value. I refer to houses. Under the Labour Government, there was very little building done for the private investor in house property. Today—

The Temporary Chairman

Order. There is nothing about houses in the Clause.

Mr. Cooper

No, Sir Samuel, but if I were to relate it to money terms, I should, presumably, be in order. Houses cost money and are paid for out of savings. Today, there are 9 million houses which represent past savings—

The Temporary Chairman

Order. The hon. Gentleman must relate this to the Income Tax.

Mr. Cooper

Houses are paid for after people have paid their tax. [HON. MEMBERS: "No."] Of course, they are. If any hon. Member opposite can tell me that house-purchase payments are made before taxation is paid, I shall be very glad to hear it, and I am sure that many millions of others will, too. House-purchase payments are made after Income Tax has been paid. They represent a payment out of the residue of a man's income. No one can deny that.

Mr. Houghton

Has the hon. Gentleman heard about tax relief on mortgages?

Mr. Cooper

Of course. This is part of the system, but the tax has to be paid, and the priority call on a man's income is his Income Tax. The hon. Gentleman must know that, or perhaps he ought to go to Oxford with his hon. Friend the Member for Cardiff, South-East and find out.

I was challenged earlier as to whether I thought that it would be a disaster for savings if a Labour Government were returned. I say that it would be a disaster. The record proves that. People did not invest in savings when there was a Labour Government because they did not believe in a Labour Government, and this was the reason why the Labour Government were thrown out in 1951. For the same reason, they will not get back in October this year. The country will return us as the Government.

I come back now to the points which have been raised by hon. Members opposite about the expense account. This is a sort of hardy annual trotted out by hon. Members opposite, and, listening to them, one would imagine that there were hundreds of thousands of company directors going about the country and living in the lap of luxury at the taxpayer's expense. What a lot of rubbish that is. Every hon. Member of the House of Commons lives on an expense account.

Mr. W. A. Wilkins (Bristol, South)


Mr. Cooper

Hon. Members claim expenses necessarily incurred in the execution of their duties as a Member of Parliament. To that extent, every hon. Member is living on an expense account. Do not let us split hairs about this. We claim our expenses and we have to justify them to the Income Tax authorities. If we cannot justify them, they are disallowed. Company directors, or anybody who is operating under Schedule E, are in precisely the same position. They have to justify their expenses to the Income Tax authorities.

I am a director of two public companies and I have to approve the expenses of sales representatives and other people who are entitled to expenses. I have to justify my own expenses to my board. My company has to make a profit. It has shareholders to consider. Do hon. Members opposite suppose for one moment that the shareholders of public companies would allow the directors or any other members of the staff to carry on dissipating the company's funds to their detriment? Of course they would not do any such thing.

Excesses do occur in some cases—there is no doubt about that—but that is true of practically everything in every walk of life. However, I assert without fear of contradiction that the conduct of the average company director and of the average board of directors in this country is very high indeed. They have a very high standard of integrity. If we criticise these men, we throw dirt at a very honourable profession—auditors and accountants. I see the hon. Member for Gloucester (Mr. Diamond) sitting there. Will he, as a member of the Labour Party and sitting on the Opposition Front Bench, say that his company or his profession audits and approves public and company accounts showing that expenses have been incurred which are unjustified? He knows perfectly well that his profession would not allow him to do any such thing.

Expenses are not simply incurred by company directors and top executives. They are incurred by commercial travellers who are not in every case earning very high salaries. We have heard much about cars today. They are provided by companies for their representatives on the road. I have a company car. I never drive less than 25,000 miles a year. Do hon. Members opposite think that I do that for fun? Do they think that I entertain customers several nights a week and never get home until midnight for fun?

Mr. Bence

Why do it?

Mr. Cooper

If hon. Members opposite are honest about this, they will acknowledge that there are many men engaged in business who have to work very hard for very many hours in order not only to sell their goods in this country but to develop trade abroad. They have to spend many months abroad developing their company's business and, at the same time, helping the country's economy.

I therefore sincerely hope that this talk about the expense account will be allowed to die. It is complete nonsense and a red herring drawn across the political scene. There are some excesses, but I believe that, by and large, the Income Tax authorities and auditors cut this down to the minimum.

6.15 p.m.

Mr. Maudling

We have had a wide-ranging debate. The hon. Member for Sowerby (Mr. Houghton) went rather wide and, no doubt, I erred too in following him. Nevertheless, this has been an agreeable debate. I take it that the Committee will be passing this Clause. I have heard no dissent from the major Question put from the Chair.

I should like to reply to one or two points. My hon. Friend the Member for Crosby (Mr. Graham Page) referred to the difficult Schedule A point on ground rents. The transitional arrangements have been complicated to follow. The question he asked was whether there was a way of giving people Income Tax relief on annual ground rents paid. I do not think that that is possible. The point of the abolition of Schedule A was to take away the liability of owner-occupiers to pay Income Tax on the notional value of their property. To go further would open up the whole question of giving a rent allowance for tax purposes, which is not something that the Government could contemplate accepting.

The rest of the discussion has ranged largely over three things—savings, expenses and the speculative gains tax. I thought that the answer on savings was given very effectively by my right hon. Friend the Member for Flint, West (Mr. Birch) and there is nothing that I need add in that respect. On expenses, I echo what has been said by more than one of my hon. Friends. It is true that there may and can be abuses in so many respects at many different levels. It is right that the Committee should always be anxious to protect the integrity of the Revenue, as indeed the Income Tax people themselves are. But it is wrong to give the impression that there are widespread abuses.

For example, I think that I am right in saying that a person with an income of over £2,000 has the private use of his motor car assessed by the Income Tax inspector and has to pay the full rate of tax. It may be difficult often to arrive at the exact figure, but I cannot see that this is necessarily a bad thing. We are always trying to tighten up the system, but I do not think that it is wise to suggest that there is widespread abuse at any level in our society.

Mr. Bence

I was not concerned with abuses. The point that I made was that with the increasing need for people to travel longer distances to their place of work we should increase the allowance on the use of a motor car which a man buys himself when he uses it to go to and from his work.

Mr. Maudling

I was coming to that. We have often discussed whether the cost of travel to work should be allowed as a deduction for tax purposes as distinct from the existing practice. I should be out of order if I were to rehearse those arguments, but I can refer the hon. Gentleman to the times when this proposal has been discussed and always rejected.

I am sorry that on the previous occasions when I have explained the point about the yield of the speculative gains tax I have not, apparently, made myself clear to hon. Members opposite. It is not yet possible to give an accurate or a useful estimate of the yield of the speculative gains tax, first, as I explained on Second Reading or when winding up the Budget debate, because of the timing of the tax and the fact that the first year of operation of the tax would bring in only a proportion of the gains liable to tax; secondly, because of the time for assessment and the large number of appeals in the operation of a new tax; and, thirdly, because quite a number of capital profits would probably fall for assessment under, I think, Case I of Schedule D: they could come under tax and be taxed under Case VII or that case.

It will never be possible to give a completely accurate estimate of the yield of the speculative gains tax. I do not wish to give the Committee a figure for the yield of the speculative gains tax which would be misleading. I repeat the undertaking which I have given before. As soon as it is possible to give a meaningful figure, we will do so, but until then it will not contribute to the health of our debates if I put forward figures which are bound to be based on very slender evidence.

I think that I have dealt with the main points which have been raised. We have had a vigorous debate and possibly a rehearsal of speeches which will be heard again and again in the next few months. I hope that with that brief explanation hon. Members will be prepared to pass the Clause.

Mr. Wilkins

Would the right hon. Gentleman answer one question? I have attempted to ask him this before this afternoon. I do not think that he was here at Question Time today when the Prime Minister gave the House an assurance that the right hon. Gentleman had made provision in the Budget for an increase in old-age pensions. Could the right hon. Gentleman tell us what—

The Temporary Chairman

That does not arise on this Question.

Mr. Wilkins

If, as the Prime Minister said, the Chancellor has made provision in the Budget for an increase in old-age pensions, he must obviously raise the money through Income Tax—through the Revenue.

The Temporary Chairman

Order. The matter could be raised at a later stage, but not on this Clause.

Question put and agreed to.

Clause ordered to stand part of the Bill.

Clause 13 ordered to stand part of the Bill.