§ I now come to the tax changes and rates that I propose for 1967–68.
§ (a) The Taxation System
§ First, I do not propose to make any major changes in our system this year. This is an off year, although I am keeping a weather eye open for any changes that may become necessary when the future of our relationships with Europe is clearer. Preliminary work on these and kindred matters is in hand. For the present, I propose to let the reforms of the last two years settle down a little. I am very glad to note the growing appreciation by the business community of the simplicity and convenience of the Corporation Tax. The Capital Gains Tax is beginning to yield revenue and will do so increasingly. The Finance Bill will contain provisions for a number of minor changes in both these taxes, some of which have already been announced.
§ (b) Betting and Gaming
§ I should perhaps say a word about the launching of the betting and gaming duties last October. Very careful preparations were made and every co-operation was received from the racecourse authorities and the bookmakers. I express my thanks to them, and for the efficiency of the Customs and Excise Department. As a result, the duties got off to a good start, despite all the dismal forecasts that were made. Now they look like being more successful than even I had expected. For 1967–68, I am estimating that the new duties will together yield £35 million, with another £35 million from the duty on pool betting making £70 million in all. With less than 12 months' experience of the new duties, I do not propose to make any alterations to them.
§ (c) The Economic Regulator
§ First, the Economic Regulator. I propose to keep the Regulator power in force for 1967–68. I cannot, in present circumstances, forgo the revenue of over £150 million a year which the 10 per cent. surcharges yield, and this has been included in the revenue figures which I have given. I therefore propose broadly to consolidate the surcharges at the existing rates with effect from tonight and, at the same time, to bring the current surcharges themselves to an end. The final result will be roughly the same, and there is nothing in the changes that I am making which would justify any increase in the price level.
As regards Purchase Tax, the simple consolidation of the surcharge means that the three basic rates will become 11 per cent., 16½ per cent., and 27½ per cent., and the surcharge will disappear.
In the case of hydrocarbon oils, the present level of duty, including the surcharge, which is 3s. 6.9d. a gallon on light oils will be rounded up to 3s. 7d. from 6 o'clock this evening. This will yield an additional £1¾ million a year. The heavy oil duty will stay at 2.2d. a gallon. With the consolidation of the surcharge on the fuel duty, the increase in the rebate to bus operators to cover the Regulator surcharge, for which provision was taken in the Bus Fuel Grants Act, 1966, lapses. I propose to include a provision in the Finance Bill so that the grants continue to cover the increase in the fuel duty since 20th July. This will require a Money Resolution.
§ As regards alcoholic drink, I propose to incorporate the surcharge into the substantive rates of duty with the least possible alteration, taking account of international commitments. At the same time, I propose to put licences for brewers and distillers on to a flat rate of £15 15s. a year, and to abolish the licences for selling liquor by retail or in clubs, which produce only £¾ million a year and are expensive to collect. I have taken these changes into account in adjusting the rates of duty for beer, wines and spirits, which hon. Members will see in the Financial Statement. The result is a net 1004 Cost to the Exchequer of about £½ million a year.
§ (d) Tobacco Manufacturers' Licences
§ I also propose to replace the graduated licence duty paid by tobacco manufacturers by a flat rate of £15 15s. a year. The cost is negligible, but it tidies it up.
§ (e) Cars: Purchase by Overseas Visitors
§ With the increasing number of foreign visitors coming here every year, a number of them who have bought British cars have found the Customs procedure cumbersome. I therefore propose to simplify the arrangements for the purchase, free of Purchase Tax, of cars for export by overseas visitors.
§ Before I come on to my proposals on direct taxation itself, I have some proposals to make about penalties for nonpayment of taxes.
§ (f) Vehicle Licence Duties
§ My right hon. Friend the Minister of Transport is proposing to change the penalties for evasion of vehicle licence duties. The statutory fine will be increased and offenders will also have to pay the duty payable since the car was last licensed or changed hands. Provisions for this purpose will be included in the Finance Bill.
§ (g) Interest on Tax Arrears
§ The great majority of taxpayers meet their liabilities to the Inland Revenue promptly and regularly. Indeed, most of us have no alternatve. But there are some laggards—a small minority—who are consistent late payers. This is not fair to those who do pay regularly—if not cheerfully. Interest is chargeable on arrears in certain cases, and at present the rate is 3 per cent. net. This is out of line with current rates, and I propose to raise it to 4 per cent. with effect from 19th April. This will increase the incentive to the laggards to pay up at the due date like the great majority of their fellow taxpayers.
I shall propose provisions to put right a flaw in the statute for charging interest where a company deducts tax from dividends and other distributions, but fails to pay it over to the Inland Revenue by 1005 the due date. This, as I said when I announced it at the time, will cover the matter as from 19th November last.
§ (h) Tax Avoidance
§ In both of the last two Budgets, with Parliament's consent, I have blocked up some of the holes made by the tax avoiders in the fiscal net. I am glad to say that there have been some successes. But the skilled tax adviser is ceaseless in inventing new ways of defeating the intention of the Acts, and circumventing their wording. A lot of misplaced ingenuity is being spent on devising these arrangements.
§ I have considered taking action on a limited scale this year to stop up one or two schemes which I think have gone too far. But I know the tax avoiders will try to find new loopholes as soon as Parliament has closed the old ones. I intend, therefore, to continue my comprehensive review of all these tax avoidance practices in the coming months to see if I can make some new watertight arrangements, and I serve notice now that I shall reserve my right to deal with these matters in full in the next Budget.
§ I now come to direct taxation
§ (i) Rates of Income Tax and Corporation Tax
§ The Committee will have realised that I propose no alteration in the rates of Income Tax or Corporation Tax.
§ (j) Surtax
§ The Finance Bill will contain the provisions required to give statutory effect to the 10 per cent. surcharge on Surtax for the year 1965–66 only. I took into account the £25 million I expect to get from this when I gave the Committee the revenue figures earlier. For 1966–67, the Surtax rates will revert to what they were before the surcharge, and this will determine the Surtax payable on the 1st January next.
§ (k) Corporation Tax
§ I shall make certain proposals to improve the administration of Corporation Tax. First, if any member of a group of companies has a loss in trade in an accounting period ending after the passing of the Finance Bill, another member of 1006 the same group may claim relief for that loss against its own profits for Corporation Tax purposes. The test of group membership will be, broadly, ownership of 75 per cent. of ordinary shares.
§ Second, the definition of "close company" needs clarification, and I propose to amend the close company rules for that purpose. This will also help to remove the danger that portfolio investment by the institutions will turn some public companies into close companies.
§ (l) Capital Gains Tax: Exclusion of Betterment Levy
§ The Finance Bill will contain the necessary provisions for excluding development value from capital gains, following the introduction of the betterment levy. I also propose to repeal the mineral rights duty, the last survivor of the four land value duties, introduced by David Lloyd George in 1910: this duty yields only about £150,000 a year. I do not believe that my distinguished predecessor from North Wales would object to the final disappearance of these duties, especially at this moment when the community will receive as a social increment so much of the natural increase in land values year by year.
§ (m) Creative Artists
§ A further proposal will help the professional author or other creative artist who sells, for a lump sum, the residual rights in a work which has been before the public for 10 years or more. He will no longer have to pay tax on the lump sum as if it were the income of a single year but, instead, will be entitled to spread the lump sum forward over a period of up to six years. This will meet a complaint that has been strongly urged in the past.
§ (n) Hobby Farming
§ I shall propose that, except in special circumstances, gentlemen known as "hobby farmers" may no longer set off their losses against other income for more than five years running.
§ (o) Stamp Duty
§ Now I come to stamp duty. When companies are formed there is a duty of 10s. per £100 on the nominal share capital; and the same duty is payable 1007 on any increase in the nominal share capital. There is also a duty on the issue of loan capital, but this is at the rate of 2s. 6d. per £100. I propose to extend the 10s. rate of duty to loan capital, and also to bring in some forms of loan capital that are now exempt. This will produce £6 million revenue in a full year. But I also propose to exempt local authorities from duty on both issue and transfer of loan capital, and this will cost £2 million in a full year.
§ I propose to exempt from the duty on bearer instruments bearer securities expressed in the currency of countries outside the sterling area. This exemption will apply to such securities of both British and overseas companies.
§ I have a proposal to help some would-be house buyers. This is by extending the range of houses relieved from stamp duty on the purchase, and by reducing the rate for another range above this. Houses costing up to £5,500 will be exempted from duty altogether; the present limit is £4,500. The reduced rate of ½per cent. will apply to houses between £5,500 and £7,000, instead of £4,500 to £6,000. Above £7,000 the rate will be 1 per cent. The concession will be worth £25 to the purchaser of a house worth £5,000. The cost will be £3½ million in a full year. These changes will take effect on 1st August next.
§ (p) Selective Employment Tax
§ I undertook to review the operation of the Selective Employment Tax during its first year. The reports I have received are that the overwhelming proportion of employers qualifying for premium or refund have registered their establishments and obtained payment against their claims without undue delay or difficulty. Naturally, there have been borderline cases which have required careful consideration. Where agreement has not been reached and appeals have been made these are being dealt with expeditiously by Industrial Tribunals. The provisions in the Selective Employment Payments Act about non-qualifying activities and the use of the "establishment" as a unit are in general working satisfactorily. I shall continue to keep the machinery under review; and, as the Committee are aware, a number of changes can be 1008 made by Order. In the basic legislation I now have two changes to propose.
§ First, there is the question of part-time workers. This has been the subject of most of the representations I have had. The reports I have received show that there is a strong case for modifying the tax in this respect. I also recognise that a number of part-time workers are elderly people who can make a most useful contribution but who no longer wish to work full-time.
§ I have, therefore, decided to relieve employers of part-time labour, employed in establishments not at present entitled to premia or refund, by refunding one-half of the tax payable in respect of adult employees who normally work less than 21 hours a week. This will help retail distribution as well as the tourist and hotel trades. The Ministry of Social Security will operate the refund scheme. Subject to the passage of the legislation, the effective date from which employers will qualify will be 4th September, 1967. As in other cases, claims will normally be paid quarterly in arrears.
§ The Ministry hope to start payments in November under a system by which the claim period will be "staggered" to help ensure prompt settlement. As soon as possible after the legislation is passed, they will issue guidance about the procedure for making claims and for keeping the necessary records. This concession will cover more than half a million part-time workers and is estimated to cost £4 million in 1967–68 and £9½ million in a full year.
§ I have also decided to introduce a refund scheme, to help employers with overseas staff. This will also be operated by the Ministry of Social Security, to relieve employers in respect of those employees for whom National Insurance contributions are paid and who have been absent overseas for over three months. This will particularly help the construction industry with its long-term contracts abroad. Assuming the necessary legislation is passed this arrangement also will be effective from 4th September, 1967, and the Ministry will issue guidance to employers beforehand. This concession is estimated to cost £1½ million in a full year.
§ With these modifications, and the other proposals put forward by the Government to help the Regions to which I have 1009 referred, this new tax, which has meant a considerable broadening of the tax base, is showing increasingly that it can be used as a flexible and useful instrument of policy.
§ (q) Personal Tax Reliefs
§ As the Committee has seen, I cannot improve personal standards of life this year by general tax reductions—the way to improvement is through an increase of real earnings based on productivity. But, although I can make few concessions, I am acutely aware of the difficulties of many groups of our fellow citizens. Many of them send me their budgets, and at the bottom end of the income scale there is a great deal of pinching and scraping. No praise is too high for those social workers who continue to uncover the poverty that still exists—for example, among certain families with children. We intend to find the best measures to relieve this hardship.
§ But there are two groups of people where I can take action at once. I refer to widows with children and single women with dependants.
§ A recent debate in the House focused attention on this problem, and showed that there are many cases where the single woman is the sole support of an elderly mother or an infirm relative. Moreover, women's wages are frequently lower than those of men and so she suffers a double handicap. I therefore propose an increase in the dependent relative allowance for a single woman who is the sole support of a dependent relative. In such a case I propose that the dependent relative allowance should be increased from £75 to £110. Widows and divorced and separated wives who are supporting a dependent relative on their own will also be able to claim the increased allowance.
§ For Income Tax purposes there is at present a well defined category of taxpayers made up of widows, widowers and certain other taxpayers who have single-handed responsibility for children. Here again, especially in the case of widows with children who go out to work there is a lot of near hardship. At pre- 1010 sent, there are two kinds of allowances. If a resident housekeeper is employed to look after the children a housekeeper allowance of £75 is given. In other cases there is an additional personal allowance of only £40. I think that the extra allowance ought to be the same in all cases and I propose to increase the additional personal allowance from £40 to £75.
§ These two reliefs will benefit about 450,000 single women or widows, apart from some others, and will cost £3 million in 1967–68 and £3¾ million in a full year. I know that the Committee will agree that the fact that I cannot propose general reliefs should not deter me from making a modest concession that will be of material benefit to this small group for whom there is widespread sympathy.