§ In section 211 of the Income Tax Act 1952 (which relates to earned income and old age relief) a claimant shall be entitled to a deduction from the amount of income tax with which he is chargeable equal to tax at the standard rate on two-ninths of the first £45 of his investment income providing the claimant's total taxable income does not exceed £3,000.—[Mr. Grant.]
§ Brought up, and read the First time.
§ Mr. Anthony Grant (Harrow, Central)
I beg to move, That the Clause be read a Second time.
The purpose of the Clause is to give some relief, a very small relief, to people who voluntarily save, on a basis rather similar to those who quite involuntarily reach advanced years, and also on a similar basis to the so-called earned income relief. It is couched in very modest terms. I have already received one letter from a correspondent in Edinburgh who complains about the niggardly 1963 nature of my Clause and comments that he assumes that I must mean £450 instead of £45. I can only conclude that in Edinburgh they are much more concerned with the thrifty than perhaps we are here.
Nevertheless, the Clause is deliberately couched in modest terms as a start in what we think is the right direction. We have borne in mind the terror of the Government lest any benefit should be given to rich men by including in the Clause an anti-tycoon proviso to exclude people whose total taxable income is more than £3,000. We have in mind the need to assuage the suspicions of the Financial Secretary who suspects that there is a Surtax-payer lurking behind the skirts of every small man. We hope that that aspect will not be an objection to the Clause by the Government as it has so often been an objection before.
The Clause is designed as an initial symbol that thrift and savings are desirable and, indeed, necessary qualities in our country today. It is designed to help the many people who are not necessarily in pension schemes, people who desire to help themselves and provide for their future, and who do not, unlike those in pension schemes, get any tax relief at the moment. It is not only intended to be a small but immediate relief to them; it is intended as a symbol to encourage people who do not save to believe that it is worth their while to do so, and to show them that the Government think that people who save should be encouraged rather than condemned for doing so.
The fundamental principles underlying the Clause are these. First, if we are to expand without inflation, the savings of our people as a whole are absolutely vital and must come from the broad mass of the community. Secondly, we believe that it is socially desirable to spread wealth and encourage people to prepare for their old age without blind reliance upon State or other pension schemes.
Furthermore, the Clause is intended to repair some of the damage which has been done to these concepts by the Bill so far. Investment and unit trusts, which are very much the small man's medium of savings, have been dealt very serious blows in the Bill; investment clubs have been neglected entirely. I have tried at a number of stages in the Bill to relieve 1964 the damage which has been done and to soften some of the blows, but I regret to say that my efforts have proved completely abortive.
The new Clause is my very last hope of salvaging something out of the wreckage of savings that the Bill has created. I pin my faith upon the protestations of belief in the small investor and the small man which has been made by a number of members of the Government, most notably by the Chief Secretary, who, I know, holds these views very sincerely, and by a number of his supporters, most vocally by the hon. Member for Manchester, Cheetham (Mr. Harold Lever). There are many others who tacitly support these views.
I pin my faith on this Clause because encouragement to people to save is not intended merely as a hedge against inflation, laudable though that may be. It goes deep into the roots of our economic structure. It is deeply concerned with ideas of freedom, individual responsibility and independence. There are very many people in this country who regard it as their duty independently, on their own, to provide for their future and their old age. This is something which should not be condemned. It is a sturdy independence which should be encouraged by the Government, and the Government should be seen to be encouraging it. That is the purpose of the Clause.
In addition, the Clause could have a profound effect upon our incomes policy as a whole. I want to draw the attention of the Committee in general and the Government, in particular, to what has just happened in Germany. They have recently passed what they call "A 312 Mark Law." Under that law 25 million wage-earners will earn full tax relief on £28 per annum, provided that the sum is invested over five years. The idea behind this move is to break the wage-price inflationary spiral, which is entirely in keeping with our own ideas of an incomes policy.
To give an example, the German building workers have recently negotiated a new agreement in which employers and employees each contribute to an investment fund which after 40 years will provide an investment fund for each individual worker of about £4,000. I am pleased to see the First Secretary present, because some of these remarks 1965 are intended for him and to give him some ideas for his incomes policy. This scheme is a check upon inflation by channelling some of the extra earnings back into production rather than into the purchase of consumer goods.
What is happening in Germany is something which I commend not only to the Chancellor of the Exchequer, but to the First Secretary. It will cost the Germans a great deal of money—£400 million per annum. They think that it is worth it. I do not believe that my new Clause would cost an enormous sum of money, but I certainly think it a worth-while proposal. Will the Chief Secretary tell us how much it will cost the Treasury? I do not believe that it will be much. It is a logical progression with the idea of giving encouragement to investment and savings—a progression which starts with the idea of welfare for all, moves on, as our society becomes more prosperous, to houses for all, and then moves on now and in the future to shares for all.
The Government must make up their mind whether they want wealth to be concentrated entirely in the hands of the State or whether they accept that we are still primarily a free capitalist society. If they accept the latter, and if they want to make the free enterprise society a success, they must realise that the savings and investment of the people form an integral part of that system. I very much hope that the Government will accept the Clause. Some of the figures are rather arbitrary, but if the Government do not like the wording of the Clause I hope that at least they will undertake to bring forward a proposal along these lines on Report.
Unless they can offer some promise of incentive for people to save, a slight softening of the blows which have been inflicted upon the saver by the Finance Bill, some relief for the thrifty, some encouragement towards wider share ownership, not only are the Government in danger of putting our economic future in jeopardy, not only will they fail to bring relief to many worthy, needy and very responsible members of our community, but they may be losing a great opportunity to ensure that we remain competitive and free in the modern world. I move the Clause as a very small chink 1966 of light to lead us towards the end of our economic tunnel.
§ 4.15 p.m.
§ Dame Edith Pitt (Birmingham, Edgbaston)
I should like briefly to support my hon. Friend the Member for Harrow, Central (Mr. Grant) in this new Clause. I hope that it will command the sympathy of the Chief Secretary for the point which I have in mind, which is that it would encourage the small saver and particularly the industrial worker who—I do not want to make a political point—in recent years has been better able to put a little aside to make himself independent and to stimulate the old virtue of thrift and independence. As the Chief Secretary is aware, there has been a changing pattern. In years gone by those who were able to save usually chose the method of the Post Office or National Savings Certificates—in the City of Birmingham we added the Municipal Bank to that—and they received encouragement because the first £l5 of investment income was free of tax through the Post Office or the Municipal Bank. I want to see the same principle extended to those who are looking for shares, mostly unit trusts, as a means of saving.
There has been considerable progress in this direction. The working man feels that he does not understand the Stock Exchange, or equities, but he can understand unit trusts; he feels that they will be safe for his savings. I know from my own experience that a number of Birmingham people have put their first savings into that kind of venture; indeed, the first shares that I myself ever bought were unit shares, and I have commended this method of saving to other people as a way of beginning to save in a modest way.
It is for these reasons that I should like to see this impetus towards investment, which adds in a modest way to the prosperity of our country, given encouragement by allowing this small amount of income to be free of Income Tax. The average unit trust investment is about £300, so that the income from this amount would come within the bracket suggested in the Clause. Because I want to see this good habit encouraged, I hope that the Chief Secretary will look sympathetically on the Clause.
§ Mr. Ian Gilmour (Norfolk, Central)
I should like to support the new Clause which was so compellingly moved by my hon. Friend the Member for Harrow, Central (Mr. Grant) and cogently supported by my hon. Friend the Member for Birmingham, Edgbaston (Dame Edith Pitt). Quite apart from all the other reasons for saving, it is important to try to channel the savings of the wage earning man into industry. This happens in America, and I am sure that the Chief Secretary envies the strength of the capital market in America even if he does not envy them the capitalist system there. No one could say that our capital market was particularly strong at present. Indeed, there would be a strong case for this new Clause in any year.
A proposal to this effect was put forward before the General Election by my hon. Friend the Member for Worcester (Mr. Peter Walker) and myself in a pamphlet of which I need not remind the Chief Secretary, because he gave an extremely misleading quotation from it earlier in this Parliament. I therefore need not draw his attention to it again beyond pointing out that the idea proposed in the Clause has not been dreamed up while we are in opposition. It was put forward when the Conservative Party were in power, and it was also, like this Clause, put forward very modestly.
The need for the Clause has been very greatly increased by the economic situation over the last few months, and particularly by the Finance Bill. I do not know whether we are in a situation of inflationary-deflation or whether it should be called deflationary-inflation, but it is plain to some extent that we are getting the worst of both worlds. We have a credit squeeze, shortage of capital and rising prices, and there is an increasingly great need for savings and capital. The Government the other day had to offer 6½ per cent. I am sure that the First Secretary wants to do anything he can to encourage increased savings. As my hon. Friend pointed out, this is not a proposal in respect of which the Government's obsession with tax avoidance could give them an excuse for rejecting it, because it has a built-in ceiling and, therefore, the tax avoidance mania which the Treasury Bench have shown on the Bill needs no outlet on this Clause.
The Chief Secretary knows the American example where the first 100 1968 dollars investment income is tax-free. The Government have been a bit reluctant to follow the Americans' example when it leads to lower taxation. They have been inclined to follow their example only when it leads to higher taxation. On this occasion they could well change their ideas and follow what happens in America.
Savings have greatly prospered under Conservative Governments. As my right hon. Friend the Member for Sutton Cold-field (Mr. Geoffrey Lloyd) said in an earlier debate, the Financial Times now appears on the factory floor. This is a way in which we can see that it appears there more often. This is a test of the Government's intentions. They have protested that their intentions are good towards private enterprise and saving. If they are, I urge them to accept the new Clause. If they are not, I urge them to do their best to conceal their intentions, also by accepting this Clause.
§ Mr. Geoffrey Lloyd (Sutton Coldfield)
I strongly support the new Clause. I should like to tell the Committee of the experience which I have derived as president of the Birmingham and District Wider Share Ownership Association. Our officers are giving lectures in a considerable number of factories in the Midlands and are finding that very great interest is being shown by industrial workers in the simple exposition of investment practice for new investors. Also, evening classes on the same subject run by local authorities have been extraordinarily popular.
I have consulted the officers and committee of the organisation to which I have referred. They are strongly in favour of the new Clause, and I should like to explain why. The effect of the Clause is to allow the first £10 of income from an investment—this excludes people earning over £3,000 a year—to be free of tax. It is interesting to realise what this would mean in capital terms. If people invested in a share yielding 5 per cent., £200 of savings would be involved. If they invested in a share which had greater capital appreciation prospects and a lower yield—say 3 per cent.—savings in the neighbourhood of £300 would be involved.
Can the industrial workers in the Midlands, with whom, like my hon. Friend the Member for Birmingham, Edgbaston 1969 (Dame Edith Pitt), I am primarily concerned, afford to make this kind of investment? The doctrine not only of the Birmingham branch, but of the National Wider Share Ownership Association is that the first savings should be either in the Post Office, or, as in the case of the Midlands, in the Birmingham Muncipal Bank, which also has a concession about the first £15 of earnings being tax free. We regard this as the sheet-anchor of somebody who should be able to call immediately on liquid resources. When this has been done, there should be investment in equity shares. This is wise for the individual, and it has certain economic and social advantages.
I wish to address myself to the question whether the industrial worker can afford not only to put his first savings in the Post Office or in the Birmingham Municipal Bank, but to go on and invest in equity shares. I admit that in the Midlands wages in engineering are about £1 a week higher than those in the rest of the country. We are probably the pace setters in industrial wages and, we hope, productivity and this new kind of investment. Therefore, what we can achieve in the Midlands is particularly important, because we hope that later it will be copied by the rest of the country.
Many wages in Birmingham are between £15 and £20 a week, but a tremendous number of men earn between £20 and £25. A substantial number earn between £25 and £30. I do not want to be misunderstood on this point, but a considerable number of men in industry in the Midlands earn between £30 and £40. I have taken pains, during the last few days, to inquire about this matter. I know that polishers in anodised aluminium who are working on window trims, and so on, for motor cars, admittedly with heavy overtime and long hours, are earning £40 a week.
I am not suggesting that enormous numbers of people in Birmingham are earning this, but I assert without fear of contradiction that there are some earning £40 a week, which is about £2,000 a year. I have inquired what proportion of workers engaged, for example, in the preparation of aluminium components for motor cars are earning this amount. In a works of about 150 workpeople of which I know, there are six polishers 1970 earning this sort of money. The Committee can form its own impression from this fact.
Are these people, who clearly can afford to invest, doing so? The answer, broadly, is, "No". They have been brought up in a working class tradition. In the past it has not been the habit of the working class, as my hon. Friend the Member for Edgbaston says with all her experience, to invest in equity shares. It was thought that this was only for the rich or the middle classes. Also, it is so much simpler for them to go in for other forms of saving, particularly in the Post Office or the building societies. This is where the concession is extremely important. People know that, because of the concession made in respect of Post Office savings, the first £15 in interest means that they have £15 to their credit. As a result of the arrangements which have been made between building societies and the Revenue, people know that, whatever the interest on building society deposits, perhaps 4 per cent., they will get it and that they do not have to indulge in complicated manœuvres to claim back tax.
Therefore, it is very important, in our view—and I feel sure that my hon. Friend the Member for Edgbaston, with her great knowledge of working-class psychology, would agree with this—that we should give this concession and let it be known that Parliament wishes to encourage this type of investment, just as it let it be known in 1956 when the Chancellor of the Exchequer gave the concession in respect of Post Office Savings that that was something which Parliament wished to encourage.
But we would need the Revenue's co-operation in a way which is possible. Once the investor had established with the inspector of taxes that he had investment income, the deduction should be made automatically under P.A.Y.E. and should be confirmed by submitting dividend vouchers at the end of the year. The Revenue, I hope, would be willing to assume that he retained the income throughout the year, but if he did not and failed to notify the sale, the Revenue could always reclaim its tax in succeeding P.A.Y.E. instalments.
I have consulted distinguished firms of accountants on this matter and they feel, from their knowledge of the way in 1971 which the P.A.Y.E. system works, that it would be possible for the Revenue to do this. The Chief Secretary will, I am sure, realise that this is something of considerable importance. We feel that it would simplify the initial investment by industrial workers in equity shares. Every working man, as he becomes more prosperous and as he has, in the American phrase, sufficient discretionary income to engage in this form of saving, has to make a personal breakthrough from the old habits of thrift and to add this new method of saving to his way of life. That is why it is very important that Parliament should encourage it and the Revenue should co-operate in establishing a system which makes it simple for him. The last thing such a man is is a financier. He is a practical man with his hands who has some savings and does not want to engage in complicated arrangements for reclaiming tax.
Under the Clause, instead of his being in a position where if he got, say, £5 on investment income, tax would be deducted at the standard rate and he would have to make a reclaim. He would, for the first £200 or £300 of savings, get £10 with the minimum of complications. This system could economically be of considerable importance to the country, because it can be seen from the figures I have quoted that the sums involved in these wage rates can become considerable as a source of savings. The Revenue could help by giving us more figures as to the numbers of people receiving different ranges of income. I believe, indeed, that it already produces a certain number of such figures.
If the Government agreed to do this they would be doing something of considerable importance in the context of our social and economic development. Since the war, particularly during the years of great prosperity under the Conservative Government, we have been seeing the working class assuming middle-class habits and, in effect, becoming middle class. I remember being laughed at soon after the war by Socialists when I suggested that washing machines would be in every home within a few years. We have long got far beyond that. We have cars, Continental holidays and home ownership, and what is proposed now in 1972 this Clause is a further example of the process.
My hon. Friend the Member for Norfolk, Central (Mr. Ian Gilmour) referred to what is taking place in America. According to the American correspondent of The Times, there are 20 million shareholders in the United States, a threefold increase in the last 10 years. We have also heard about developments in Germany. Perhaps it hurts us a little to feel that the Germans should be in advance of us in this, but we must remember that the idea of social insurance itself came from Germany, where it was introduced by Bismarck towards the end of his life, and we have developed it here. It was not a specifically English idea in origin and we should not be too proud to look at the experience of other nations.
I hope that the Government will accept the Clause.
§ Sir Lionel Heald (Chertsey)
I am pleased to support my right hon. and hon. Friends who are associated with the Wider Share Ownership movement. I am not directly associated with it, but I am convinced of its valuable work. I hope that the new Clause will receive very careful consideration. It has been rightly said that the financial effect involved would be small, but it should not be regarded as a token Amendment, for it is much more than that. It is a step forward in principle of very great importance.
It might not be inappropriate for me to say that this provides the opportunity for the Government to make clear to the Committee and to those outside interested in savings their attitude towards small savers and small investors. When we discussed Clauses 34 and 63 we were, unfortunately, unable really to achieve anything, certainly for investment trusts, and now it must be admitted that we have achieved very little for the small investor.
I hope, Dr. King, that you will not think it improper or inappropriate, for it is relevant, if I refer to the unfortunate misunderstanding between the Chief Secretary and me on the question of the Government's attitude towards savings. I think that the right hon. Gentleman will agree with me that it arose largely from the fact that I said I had written a letter to him and he said that he had not received it. Naturally, just as he said that 1973 his arrangements for dealing with correspondence are highly efficient, I like to think that my arrangements, although not of an official character, are also extremely efficient and perhaps some hon. Members will know why I have a rather personal feeling about that.
The Chief Secretary has sent me now a most courteous letter in which he says he has discovered that my letter was sent, was passed to the Inland Revenue and, owing to great pressure of correspondence in that Department, took several days to reach its destination. Had he received the letter earlier, he would have had notice of the points I intended to raise and much of the misunderstanding, I believe, would have been removed. I also believe that, at the time, he had an unfortunate impression of the effect of what I had said. However, on reading HANSARD he was able to see that there was no hard feeling on my part.
I hope and believe, therefore, that it may be possible for the right hon. Gentleman and me to continue the friendly relations we have always had and that this will assist in making clear that my chief interest in this matter is to help the small investor who, I believe, can make a very important contribution to the future of the country.
§ Mr. Terence L. Higgins (Worthing)
We have spent many days and long nights discussing details of highly complicated legislation recently and it is appropriate than on this last day we should have a chance to discuss this very important proposal. I warmly support the new Clause. A great deal has been said, from this side of the Committee, about the encouragement of savings and every one on both sides wishes to encourage them. Therefore, we hope that the right hon. Gentleman, in half-term holiday mood, may feel that he can accept this Clause.
As I understand, this would give relief not only to those intending to save, but also to those who have already saved and who are perhaps living in retirement on a fixed income. I support the Clause strongly because, if there is one group of persons who, in an age of ever-increasing prosperity, have found their real income declining, it is those relying on fixed incomes.
In earlier times, when we had less of the Welfare State, many people saved to 1974 make provision for their retirement but now find that the fixed incomes from their investments are buying less and less. These are the real victims of inflation. Any relief that can be given from Income Tax should be given to them. A very large number of people in my constituency write to me about the problems of inflation and particularly about rising rates. It is extremely difficult for them to face the last years of their lives in hardship as their real income steadily declines.
I also urge support of the Clause because, some time ago, we failed in our attempt to get through a Private Member's Bill to assist old age non-pensioners. The Government did not see fit to enable that Bill to come before the House. I know a number of people, over 80 and living on very small fixed incomes from investments, who have no relief. Many of them supported the Labour Party in the expectation of receiving an incomes guarantee. As far as one can see, it is probable that the incomes guarantee scheme will not, in fact, be introduced until 1967. Therefore, there is again a strong reason for the Committee to support the new Clause.
Finally, with the introduction of the Corporation Tax, it has become clear that people who live on investment income from companies that make most or some of their profits overseas will find that those companies will have to reduce their dividends. That will result in very real hardship to some people living on fixed incomes on whose behalf I now speak. If they are to suffer, the least the Government can do is to introduce some compensating measure that will do something to offset the effect of the Corporation Tax on this group.
It has been said that the Government must take stronger action against' people living on big investment incomes. My hon. Friend the Member for Harrow, Central (Mr. Grant) has been very careful to ensure that the provisions of the new Clause do not cover those people—though the Chief Secretary might reasonably say that the limit in the new clause is set too high. In this case, if he liked to reduce the limit while accepting the new Clause, we would still be grateful. In the Clause we have excluded from relief those living on large investment incomes. We seek some compensation for those on small 1975 investment incomes who are now suffering more than any other group in the community.
§ The Chief Secretary to the Treasury (Mr. John Diamond)
I hope that it will be thought convenient that I should now reply, having regard to the great deal of business which, I gather, it is the desire of both sides to get through in the course of the day.
First, Dr. King, may I associate myself with your remarks about the assistance the Committee has received from those who have all the dreary labour of listening to what has been said and none of the fun of participating in it. We recognise the tremendous help they have been to us, and we are very happy that you should have thought fit to start the proceedings with a word of tribute and appreciation.
On a personal note, I am also most grateful to the right hon. and learned Member for Chertsey (Sir L. Heald) for his courteous remarks and for the obvious sympathy with which he made them. I assure him that if there was any misunderstanding, it is completely removed. The right hon. and learned Gentleman was, as he knows, the Member of Parliament for the constituency in which I lived. I did not then disclose to him which way I voted, and I do not propose to do so now, so as to avoid raising the temperature.
The debate has partly referred to what I might call "hard cases"—the hon. Member for Worthing (Mr. Higgins) referred particularly to them. Therefore, perhaps I might start by describing very shortly the three ways in which hard cases in this field are already dealt with. First, there is age relief. That deals with the investment income of people who are over 65, and gives to them, within limits, the earned income relief that is proposed in this new Clause. Then we have the small income relief. That deals with people below 65 years of age, and provides that where their income is not above certain limits they, again, get earned income relief on investment income. We therefore have two cases in which, already, earned income relief is granted on investment income—for those below 65 where the total amount is small, 1976 and for those above 65, again within limits.
Further, we have an age exemption relief which gives complete exemption for taxpayers over 65 who have small incomes. They do not pay any tax at all provided that their income does not exceed certain figures. Those figures are being increased by the Bill, so that a married couple over 65 years of age with an income of £12 a week will be completely exempt. Therefore, I suggest that, on the ground of hardship the situation is, by and large, reasonably met.
The hon. Member for Harrow, Central (Mr. Grant) moved the Clause more in terms of saving, and many speakers have concentrated on that aspect. That being so, perhaps I may be allowed to repeat what I have said many times—many times from that side of the Committee as a back bencher and, perhaps more relevantly, from this side in my present capacity.
Savings are to be encouraged in every possible way—large savings, small savings. Every additional pound that an individual saves is a direct contribution, may be, to the building of a hospital, or to something else to which the individual concerned does not realise he is contributing. But, by his saving, he is making that possible. If the taxpayer wishes us to contribute more in overseas aid, then, apart from the exchange problem, the very fact of his saving makes that possible.
So there is every possible inducement to encourage people to save, both from the point of view of Government policy and from my own view. Speaking personally—this is not a Government remark, but a personal one—I think that saving is in every sense encouraging to the character of the individual, and wholly to be recommended from whatever point of view one looks at it. So there is no doubt where we stand about encouraging saving.
The question that arises is: what is the best method of encouraging small savings? Is the method proposed in the Clause the appropriate one? I must say that that method suffers from a very considerable defect. It rests on a blurring of the distinction between earned income and unearned income. It does not deal 1977 with any question of hardship, as with the three cases I have dealt with—old age, the person who was ill, and, therefore, could not earn income, but had to rely only on unearned income, or the person who, after pensionable age, did not have a pension because, for some reason or other, was not able to earn it during the period of ordinary livelihood and, therefore, had to rely on unearned income only.
The Clause does not deal with any of those cases, but opens the door very wide, and says that every moderate saver, every person with a moderate amount of investment income—the amount referred to is about £1,000—should have a benefit in the form of earned income relief. I do not take the view that this is a method of encouraging saving. There are many methods—the Government have announced some, and others are under consideration—but I do not think that this is the right way to encourage savings.
I find it very difficult to see why this burden of taxation—small, admittedly; the Clause would cost about £10 million—should to that extent be removed broadly from the shoulders of those who do not earn to those who have earned income. For those main reasons, and without going into the subject at greater length, I cannot recommend the Committee to accept the Clause.
§ Mr. Peter Walker (Worcester)
The Chief Secretary said that he was at one time a constituent of my right hon. and learned Friend the Member for Chertsey (Sir L. Heald), but that to avoid tension in the Committee he would not disclose which way he voted. As the right hon. Gentleman knows, I was a resident for a period in his constituency, and did my best—
§ The Chairman
Order. I allowed the right hon. and learned Member for Chertsey (Sir L. Heald) and the right hon. Gentleman the Chief Secretary to range out of order in the interests of reconciling personal differences that have grown up. I hope that the hon. Member for Worcester (Mr. Peter Walker) will not go too far.
§ Mr. Walker
I think that what I have to say is very much in order. Having heard the Chief Secretary's reply, I do not hesitate to say that if I still lived in 1978 his constituency I would work very hard to get rid of him.
The general lack of detailed argument in the right hon. Gentleman's reply showed how very thin his case was. One has noticed during our Committee proceedings that if the right hon. Gentleman is on a weak point he endeavours to repeat the opposite to his point with great passion and sincerity. If we point out that the Corporation Tax is complicated, we are told that it is simple. If we point out that the Government do nothing about savings, the right hon. Gentleman points out his desire to help savings, and then says why he will not help in that direction today. This has been typical of the right hon. Gentleman's method of arguing this afternoon.
My hon. Friend the Member for Harrow, Central (Mr. Grant) produced very cogent economic and social arguments for the acceptance of the Clause, economic arguments, further developed by my hon. Friend the Member for Norfolk, Central (Mr. Ian Gilmour), as to the importance of a healthy and vigorous capital market in this country. The one way in which we shall substantially improve the capital market in this country is to harness the considerable incomes of the great majority of the people into that capital market. There are many problems and tasks before those concerned with the operation of channelling this money into savings. There is obviously the task of simplifying the procedures and there is also the task of persuading people to go in for new forms of savings.
The main difficulty for the present small saver going into most equity investments is the Income Tax deducted at the source. In future, there will also be the application of Corporation Tax. For this reason, there is a hesitancy on the part of those on lower rates of tax to go in for this kind of saving, and because of this very fact there is some justification for certain taxation incentives being given to them.
There is also the very strong argument for encouraging savings because of the present inflationary tendencies in the economy. Only this week, the Government have announced in a Written Answer that since they have been in office the purchasing value of the £ has gone down from £1 to 19s. 2d., an indication of the strong inflationary pressures 1979 which currently exist. A very topical illustration of the need to take money out in savings is the announcement only within the last 48 hours that there is not to be an increase in London Transport's fares.
There has been an increase in wages, so that much more money is to be put into the economy to increase demand. It would be very fine for the Government if that increase in demand resulting from the considerable wage increases now taking place were to be diverted into savings. I am sure that the Chancellor of the Exchequer would be delighted if that were the case. If the Government want to encourage savings to a greater level, they have to do something about it and not just exhort people to save without some distinct incentive.
What we are asking for is not a revolutionary or outstandingly new principle. This is a method which is used in many countries where the capitalist system, the free enterprise system, exists. Many hon. Members will be aware that in the United States, for example, the first 100 dollars of income from investments is tax-free, and that is 100 dollars for the man and 100 dollars for his wife, which can be put together so that the total relief for the family is 200 dollars tax-free income from investments.
Any person connected with the investment industry in the United States will agree that one of the reasons why the United States has been so successful about providing the colossal volume of capital needed for its expanding economy is that it has been able to attract into industry the savings of the great mass of the people in the United States. To a large extent this has been done by distinct and considerable tax incentives for the wage earner. By supporting the Clause we would be taking a considerable step forward in giving that direct encouragement.
There is also the social aspect of the Clause, dealt with by my right hon. Friend the Member for Birmingham, Edgbaston (Dame Edith Pitt) and my right hon. Friend the Member for Sutton Coldfield (Mr. Geoffrey Lloyd) and particularly emphasised by my hon. Friend the Member for Worthing (Mr. Higgins), who, as we know, has a 1980 considerable population in his constituency living on fixed incomes and who is well aware of the problems. I do not think that my hon. Friend will be particularly satisfied with the response of the Chief Secretary, who took the view that there was no longer any real problem for these people. Any of us who know the plight of people on fixed incomes and living in retirement will know that there is still a real problem.
This Bill itself will go a considerable way to decreasing the incomes of these people because of the very nature of the Corporation Tax with its disincentive to distribution, which will mean that overall the level of dividends will be decreased. These people are dependent on the level of dividends.
§ Mr. Diamond
Supposing that were true, as it may well be in many cases, is not this the very thing the hon. Gentleman wants—the encouragement of corporate savings?
§ Mr. Walker
If the Chief Secretary is now arguing that the way to encourage savings in future is to stop companies from distributing to shareholders, he will have a shock, because if the Government embark on the policy of attaining their savings, or largely doing so, not through people contributing part of their earning power to industry, but by the Government insisting through their taxation policies that those who invest should never receive proper rewards for their investments, there will be a great fall and not an increase in savings.
I am rather surprised that the Chief Secretary should suggest—and perhaps this is the key to his complacency on this issue—that the Government no longer want to encourage individuals to invest, but will insist that savings should be made within companies because of the impact of the Corporation Tax. That is a very dangerous policy to adopt and it will end in a great deal of difficulty for the whole free enterprise system.
§ Mr. Diamond
I interrupt for a second time only because of the importance of what is said from the Dispatch Box and to make it perfectly clear that the Government are most anxious for every individual saver and for every corporate saver and for every saver of every possible kind to save more.
§ Mr. Walker
This is a repeat performance by the Chief Secretary. Every time he makes a remark saying that he is to do nothing for the individual saver he says, "May repeat that I love individual savers?". A few moments ago he clearly made the point—and the Committee heard it—that the real way which the Government have in mind to encourage savings is out of corporate savings. He agreed that the people in the constituency of my hon. Friend the Member for Worthing would have lower incomes in future as a result of the Corporation Tax and that these people would either be discouraged from saving, or would suffer from lower incomes as a result.
What we are saying is that if in his endeavour to encourage corporate savings the Chief Secretary is lowering the incomes of the constituents of my hon. Friend, it is not unreasonable for him to accept the Clause to make some amends for the lowering of their incomes.
§ Mr. Joel Barnett (Heywood and Royton)
Surely the hon. Gentleman accepted the case when my right hon. Friend pointed out that the very small investment income holder did not pay any tax now?
§ Mr. Walker
At no stage did I deny that. What I am saying—and I know that the hon. Member for Heywood and Royton (Mr. Barnett), with his considerable knowledge of these affairs, is well aware of it—is that there are many people, particularly in constituencies like Worthing, who, although they get relief from the present Income Tax position, will, nevertheless, as a result of the Bill, have their incomes reduced because of the lower distribution of dividends, and the Clause would make some amends for that. That is beyond denial. If their incomes are over a certain level, they will obtain certain relief from the Clause.
There is the social aspect, mentioned by my right hon. Friend the Member for Edgbaston, of the importance of getting a wider spread of participation in industry, a kind of sense of ownership. Perhaps because for so long the political battle in this country has been between the advocates of the Socialist system and the advocates of the free enterprise system, those of us who want to see this spread of ownership throughout the country are constantly having to overcome basic 1982 prejudices against profit and capital. It has been said that the difference between capital and savings is that if another man has a bank account that is capital, whereas if one has a bank account oneself, that is savings. It is time for a difference in the basic attitude.
If hon. Members opposite now recognise that whether they or we are in power the free enterprise sector of industry is of paramount importance, they must see that the taxation system encourages the maximum spread of ownership of British industry. They are not doing that now and still their prejudices are coming forward.
Earlier this afternoon we heard of further delays in the nationalisation of steel, as we had expected. A much better social way of obtaining the true participation in ownership of British industry is to encourage wider share ownership. This is a much better theme and one which our people would respond to far more than the Government's outdated proposals and nationalisation.
During the course of the Bill there have been a series of blows to savings. We have had blows to the unit trusts investment, to the investment trust movement and to the life assurance method of saving. The cost of this new Clause is about £10 million, the Chief Secretary says. The cost of the increased savings taken directly from the policy holders of life assurance will be £23½ million, so that in accepting the Clause the Chief Secretary would be making only small amends for the damage that he and his colleagues have done throughout the various stages of this Bill.
My right hon. Friend the Member for Bexley (Mr. Edward Heath) said during the Second Reading debate on this Bill, when condemning the fact that it did very little to help our existing economic problems, that the Bill had done nothing to stimulate competition and nothing to stimulate savings. We hoped that after the long debates that have taken place during the Committee stage, this Clause would at least give some opportunity to the Government to repent and make amends for the real damage that they have done to savings. Unfortunately, they have not taken the opportunity and I certainly hope my hon. Friends will divide the Committee.
§ Mr. R. Gresham Cooke (Twickenham)
Before we part with this Clause I would like to say something to the Chief Secretary which would apply particularly if he happened to be here another year. I have put down a new Clause to allow the first £15 of investment income to be free of tax and if it has been selected we will have a debate. My right hon. Friend the Member for Sutton Coldfield (Mr. Geoffrey Lloyd) put down a new Clause about contractual savings and this year my hon. Friend the Member for Harrow, Central (Mr. Grant) has taken up the banner and I hope that he will be successful this year and not 40 years on.
I had hoped that this year we would get much further because of the impetus given by Germany. Germany has always been very progressive in these matters of social security, such as helping the worker and the saver. Their scheme which, I believe, is called the 312 Mark Law, is worthy of serious study by Treasury officials.
I hope that within the Treasury there is no jealousy towards industrial savings. The Treasury helps savings in the Post Office by allowing £15 free of tax, the building societies by giving a lower rate of tax than the standard rate, but there is no assistance whatever given to this type of industrial savings. There are 10 million people in industry, many of them earning very good wages and becoming more and more interested in putting money back into industry, and the Treasury ought to do more to assist the man on the workshop floor.
I was rather sorry to hear the Chief Secretary talk about this new Clause as a blurring between earned and unearned income. Does that really matter? The interest we are talking about comes from saving from earned income on which the taxpayers have no tax incentive and I hope that next year the Treasury will see that these industrial savings are put on the same basis as building societies and Post Office savings and receive a tax incentive.
§ Mr. Barnett
I sympathise with the idea behind the Clause to encourage new savings, but I cannot help feeling that its sponsors and the hon. and right hon. Members who have spoken in favour 1984 of it are under a very serious misapprehension if they think that it will help.
The right hon. Gentleman the Member for Sutton Coldfield (Mr. Geoffrey Lloyd), in his speech, made it clear that it would complicate rather than simplify the matter. The major point he made was that the reasons why people were not investing in this way was largely because they received the interest net rather than gross as they do in the Post Office Savings Bank, the Trustees Savings Bank and so on.
I would have thought if we were to spend £10 million or some such figure by way of assistance to encourage savings we might consider giving the £10 million as a form of assistance to the unit trust movement in order to allow them to pay interest gross where required, as happens in the case of some finance companies whereby interest can be paid either gross or net. We could allow unit trusts to pay interest gross and give some allowance to the unit trust themselves as a contribution towards the additional administrative expenses in which they would be involved.
This would enable them to reclaim the tax to pay small unit trust owners the interest gross. I think that something along these lines would be a much greater form of encouragement to the small saver in particular, for he would then be able to see clearly the return he is obtaining, in the same way as applies when he invests in the Post Office or Trustee Savings Bank.
§ Mr. Reader Harris (Heston and Isleworth)
We are somewhat disappointed at the Chief Secretary's answer to the new Clause. I do not doubt his sincerity when he says the Government want to see more saving, but, as our Front Bench spokesman has already pointed out, their promise and performance do not always match in these matters.
I am becoming increasingly worried because I hear it said so often now by hon. Members on the Government side, perhaps in circles a little more to the left of the Chief Secretary, that what is aimed at is a state where people do not have any savings at all and that when they reach retirement they ought not to have any savings. Instead, they ought to draw a pension which would 1985 enable them to live an adequate life. I hope that this is not Government policy, but I hear that view expressed so often that I think it is a trend in Labour Party circles.
It is a disappointment that we have not had this very modest concession made today. My information is that savings are falling, and have been falling, since the Labour Government came into office. There may be a variety of reasons for this, and I may be wrong, but the same thing happened when a Labour Government were last in office. Everything should be done to increase savings.
My hon. Friend the Member for Harrow, Central (Mr. Grant) is to be congratulated on bringing this matter forward today. I hope that even if we have not had a concession on this occasion we shall perhaps get it on another. It is not too late for the Chief Secretary to give further consideration to this matter between now and Report.
§ Mr. Geoffrey Lloyd
The Chief Secretary expressed an undivided authoritative Revenue opinion about the principle involved in this Clause when he condemned it by saying that it blurred the distinction between earned and unearned income. In a Select Committee of this House in 1906, which was the origin of the distinction adopted by later Chancellors of the Exchequer between unearned and earned income and what was called in those days permanent and precarious income, which
was another definition, the Chairman of the Select Committee said:
There is no short and sharp distinction
between the two classes at one point. Sir Henry Primrose, then Chairman of the Board of Inland Revenue, said, with all the authority of his position:
I have indicated that my opinion is against charging a higher rate upon the income that is derived from savings as long as those savings are in the hands of those persons which have made the savings.
§ This may not be a popular view with recent Chancellors of the Exchequer, but it is a reasonable view which comes from somebody in high authority. I believe that there is no person whose savings are more nearly in his hands than the industrial worker who saves in the manner we are contemplating in this Clause. Therefore, I think that the Chief Secretary must accept the view that some blurring between the two has something to commend it.
§ I think that the right hon. Gentleman's reply is pre-eminently the reply of an exhausted Treasury Minister who is without a spark of imagination, who does not appreciate the new social force, and who is doing nothing, and is not prepared, to exert himself to encourage a new and important social movement.
§ Question put, That the Clause be read a Second time:—
§ The Committee divided: Ayes 136, Noes 147.1987
|Division No. 201.]||AYES||[5.10 p.m.|
|Alison, Michael (Barkston Ash)||Crawley, Aidan||Harvey, John (Walthamstow, E.>|
|Allan, Robert (Paddington, S.)||Crosthwaite-Eyre, Col. Sir Oliver||Hastings, Stephen|
|Allason, James (Hemel Hempstead)||Curran, Charles||Hawkins, Paul|
|Anstruther-Gray, Rt. Hn. Sir W.||d'Avigdor-Goldsmid, Sir Henry||Hay, John|
|Awdry, Daniel||Doughty, Charles||Heald, Rt. Hn. Sir Lionel|
|Baker, W. H. K.||Drayson, G. B.||Heath, Rt. Hn. Edward|
|Balniel, Lord||Eden, Sir John||Hendry, Forbes|
|Batsford, Brian||Elliot, Capt. Walter (Carshalton)||Higgins, Terence L.|
|Beamish, Col. Sir Tufton||Emery, Peter||Hill, J. E. B. (S. Norfolk)|
|Biffen, John||Errington, Sir Eric||Hordern, Peter|
|Biggs-Davison, John||Fell, Anthony||Hornsby-Smith, Rt. Hn. Dame P.|
|Birch, Rt. Hn. Nigel||Fisher, Nigel||Hunt, John (Bromley)|
|Black, Sir Cyril||Fletcher-Cooke, Charles (Darwen)||Jenkin, Patrick (Woodford)|
|Blaker, Peter||Fraser,Rt.Hn.Hugh(St'fford & Stone)||Kerr, Sir Hamilton (Cambridge)|
|Boyd-Carpenter, Rt. Hn. J.||Fraser, Ian (Plymouth, Sutton)||Kershaw, Anthony|
|Boyle, Rt. Hn. Sir Edward||Glover, Sir Douglas||Kimball, Marcus|
|Braine, Bernard||Goodhew, Victor||Lagden, Godfrey|
|Brinton, Sir Tatton||Grant, Anthony||Legge-Bourke, Sir Harry|
|Brooke, Rt. Hn. Henry||Grant-Ferris, R.||Lloyd,Rt.Hn.Geoffrey(Sut'nC'dfield)|
|Burden, F. A.||Gresham Cooke, R.||Longden, Gilbert|
|Buxton, Ronald||Griffiths, Eldon (Bury St. Edmunds)||Lubbock, Eric|
|Carlisle, Mark||Griffiths, Peter (Smethwich)||Mackenzie, Alasdair (Ross&Crom'ty)|
|Channon, H. P. G.||Grimond, Rt. Hn. J.||McLaren, Martin|
|Clark, William (Nottingham, S.)||Gurden, Harold||Maclean, Sir Fitzroy|
|Clarke, Brig. Terence (Portsmth, W.)||Hall, John (Wycombe)||McNair-Wilson, Patrick|
|Cooke, Robert||Hall-Davis, A. G. F.||Marples, Rt. Hn. Ernest|
|Cooper-Key, Sir Neill||Harris, Frederic (Croydon, N.W.)||Mathew, Robert|
|Costain, A. P.||Harris, Reader (Heston)||Maude, Angus|
|Craddock, Sir Beresford (Spelthorne)||Harrison, Brian (Maldon)||Mawby, Ray|
|Maxwell-Hyslop, R. J.||Roots, William||Vickers, Dame Joan|
|Meyer, Sir Anthony||Royle, Anthony||Walker-Smith, Rt. Hn. Sir Derek|
|Mills, Peter (Torrington)||Sharples, Richard||Walters, Dennis|
|Mills, Stratton (Belfast, N.)||Sinclair, Sir George||Ward, Dame Irene|
|More, Jasper||Smith, Dudley (Br'ntfd & Chiswick)||Weatherill, Bernard|
|Morrison, Charles (Devizes)||Speir, Sir Rupert||Whitelaw, William|
|Mott-Radclyffe, Sir Charles||Steel, David (Roxburgh)||Williams, Sir Rolf Dudley (Exeter)|
|Munro-Lucas-Tooth, Sir Hugh||Stoddart-Scott, Col. Sir Malcolm||Wills, Sir Gerald (Bridgwater)|
|Onslow, Cranley||Studholme, Sir Henry||Wilson, Geoffrey (Truro)|
|Orr-Ewing, Sir Ian||Summers, Sir Spencer||Woodhouse, Hon. Christopher|
|Osborne, Sir Cyril (Louth)||Taylor, Sir Charles (Eastbourne)||Wylie, N. R.|
|Page, R. Graham (Crosby)||Taylor, Edward M. (G'gow,Cathcart)||Yates, William (The Wrekin)|
|Peel, John||Taylor, Frank (Moss Side)||Younger, Hn. George|
|Prior, J. M. L.||Thomas, Rt. Hn. Peter (Conway)|
|Pym, Francis||Thompson, Sir Richard (Croydon, S.)||TELLERS FOR THE NOES:|
|Redmayne, Rt. Hn. Sir Martin||Thorpe, Jeremy||Mr. MacArthur and|
|Rees-Davies, W. R.||Tilney, John (Wavertree)||Mr. R. W. Elliott.|
|Ridley, Hn. Nicholas||van Straubenzee, W. R.|
|Albu, Austen||Holman, Percy||Orbach, Maurice|
|Atkinson, Norman||Horner, John||Owen, Will|
|Bacon, Miss Alice||Howarth, Harry (Wellingborough)||Page, Derek (King's Lynn)|
|Bishop, E. S.||Howarth, Robert L. (Bolton, E.)||Paget, R. T.|
|Boston, T. G.||Howell, Denis (Small Heath)||Parker, John|
|Bowden, Rt. Hn. W. (Leics S. W.)||Howie, W.||Parkin, B. T.|
|Bradley, Tom||Hughes, Emrys (S. Ayrshire)||Pavitt, Laurence|
|Bray, Dr. Jeremy||Hughes, Hector (Aberdeen, N.)||Popplewell, Ernest|
|Brown, Rt. Hn. George (Belper)||Hunter, Adam (Dunfermline)||Prentice, R. E.|
|Brown, Hugh D. (Glasgow, Provan)||Hunter, A. E. (Feltham)||Pursey, Cmdr. Harry|
|Brown, R. W. (Shoreditch & Fbury)||Hynd, H. (Accrington)||Redhead, Edward|
|Buchanan, Richard||Irving, Sydney (Dartford)||Rees, Merlyn|
|Butler, Herbert (Hackney, C.)||Janner, Sir Barnett||Reynolds, G. W.|
|Callaghan, Rt. Hn. James||Jeger,Mrs.Lena(H'b'n&St.P'cras,S.)||Rhodes, Geoffrey|
|Carmichael, Neil||Jenkins, Hugh (Putney)||Roberts, Albert (Normanton)|
|Carter-Jones, Lewis||Jenkins, Rt. Hn. Roy (Stechford)||Roberts, Goronwy (Caernarvon)|
|Chapman, Donald||Johnson, Carol (Lewisham, S.)||Robinson, Rt. Hn.K.(St. Pancras, N.)|
|Cousins, Rt. Hn. Frank||Jones, J. Idwal (Wrexham)||Rogers, George (Kensington, N.)|
|Crawshaw, Richard||Jones, T. W. (Merioneth)||Rose, Paul B.|
|Darling, George||Kelley, Richard||Shore, Peter (Stepney)|
|Davies, Ifor (Gower)||Kerr, Mrs. Anne (R'ter & Chatham)||Short,Rt.Hn.E.(N'c'tle-on-Tyne,C.)|
|de Freitas, Sir Geoffrey||Kerr, Dr. David (W'worth, Central)||Short, Mrs. Renée (W'hampton.N.E.)|
|Delargy, Hugh||Lawson, George||Silkin, John (Deptford)|
|Dell, Edmund||Leadbitter, Ted||Silverman, Julius (Aston)|
|Diamond, Rt. Hn. John||Ledger, Ron||Silverman, Sydney (Nelson)|
|Driberg, Tom||Lee, Miss Jennie (Cannock)||Skeffington, Arthur|
|Dunnett, Jack||Lewis, Arthur (West Ham, N.)||Slater, Mrs. Harriet (Stoke, N.)|
|English, Michael||Lipton, Marcus||Snow, Julian|
|Ennals, David||Loughlin, Charles||Stonehouse, John|
|Evans, Albert (Islington, S.W.)||McCann, J.||Strauss, Rt. Hn. G. R. (Vauxhall)|
|Evans, Ioan (Birmingham, Yardley)||MacDermot, Niall||Swain, Thomas|
|Fletcher, Sir Eric (Islington, E.)||McInnes, James||Symonds, J. B.|
|Fletcher, Raymond (Ilkeston)||McLeavy, Frank||Taverne, Dick|
|Floud, Bernard||Mallalieu,J.P.W.(Huddersfield,E.)||Thomas, George (Cardiff, W.)|
|Foley, Maurice||Manuel, Archie||Tomnev, Frank|
|Foot, Michael (Ebbw Vale)||Marsh, Richard||Tuck, Raphael|
|Freeson, Reginald||Mason, Roy||Urwin, T. W.|
|Garrow, A.||Mayhew, Christopher||Varley, Eric G.|
|Gourlay, Harry||Mikardo, Ian||Wallace, George|
|Griffiths, Will (M'chester, Exchange)||Molloy, William||Warbey, William|
|Gunter, Rt. Hn. R. J.||Morris, Alfred (Wythenshawe)||Weitzman, David|
|Hamilton, James (Bothwell)||Morris, Charles (Openshaw)||Wells, William (Walsall, N.)|
|Hamilton, William (West Fife)||Murray, Albert||White, Mrs. Eirene|
|Hamling, William (Woolwich, W.)||Newens, Stan||Whitlock, William|
|Hannan, William||Noel-Baker, Francis (Swindon)||Wilkins, W. A.|
|Harper, Joseph||Noel-Baker,Rt.Hn.Philip(Derby,S.)||Wilson, William (Coventry, S.)|
|Hart, Mrs. Judith||Norwood, Christopher||Zilliacus, K.|
|Hazell, Bert||Ogden, Eric|
|Heffer, Eric S.||O'Malley, Brian||TELLERS FOR THE NOES:|
|Henderson, Rt. Hn. Arthur||Oram, Albert E. (E. Ham, S.)||Mr. Fitch and Mr. Gray.|