§ CHARGE OF INCOME TAX FOR 1968–69
§ The Temporary Chairman (Mr. Harold Gurden)
The next Amendment selected is Amendment No. 5, with which we shall discuss Amendment No. 6, in clause 12, page 8, line 41, leave out from '£2,000' to end of line 43 and add 'at the following higher rates in respect of the excess, that is to say:—
On the first £2,000 of the incomes chargeable to surtax—Nil.
On the next £500 of the income chargeable to surtax up to £2,500 at 2s. 0d. in the £.
On the next £500 of the income chargeable to surtax up to £3,000 at 2s. 6d. in the £.
On the next £1,000 of the incomes chargable to surtax up to £4,000 at 3s. 6d. in the £.
On the next £1,000 of the income chargeable to surtax up to £5,000 at 4s. 6d. in the £.
On the next £2,500 of the income chargeable to surtax up to £7,500 at 5s. 0d. in the £.
On the next £2,500 of the income chargeable to surtax up to £10,000 at 5s. 6d. in the £.
On the next £2,500 of the income chargeable to surtax up to £12,500 at 6s. 0d. in the £.
On the next £2,500 of the income chargeable to surtax up to £15,000 at 6s. 9d. in the £.
On the remainder of the income at 7s. 6d. in the £.'.
§ Sir G. Nabarro
I beg to move Amendment No. 5, in page 8, line 36, leave out '8s. 3d.' and insert '7s. 6d.'
I am glad that we have profited from our experience in earlier years, which has facilitated the section of an Amendment dealing with reduction of Income Tax with an Amendment dealing with reorientation and reduction of Surtax, the two most massive forms of direct taxation, for it is very difficult to debate the one without the other.
The purpose of the Amendments in broad principle is to reduce the standard rate of Income Tax from 8s. 3d. in the £ to 7s. 6d. in the £, and so to reorientate all the rates of Surtax as to cause the highest level of Surtax to be 7s. 6d. in the £, so that the greatest earner in Britain and the highest payer of Income Tax and Surtax combined would not have to pay more than 7s. 6d. in the £ in Income Tax and 7s. 6d. in the £ in Surtax, an aggregation of 15s. in the £ on earned income.
That is why I am so grateful to the Chairman of Ways and Means for responding to the request I made to him yesterday that the two Amendments 1046 should be associated the one with the other, so that we could talk in terms of a maximum of 15s. in the £ for direct taxation
In 1966, immediately following the General Election, I moved during the Committee stage of the Finance Bill an Amendment to reduce the standard rate of Income Tax. Then I was persuaded by my right hon. Friend the Member for Enfield, West (Mr. Iain Macleod) not to take the matter to a vote because economic conditions would not have allowed a reduction in the rate of taxation on the scale I envisaged. I responed to the blandishments of my right hon. Friend and of the Whips and did not force a Division.
In 1967, I set down similar Amendments to that year's Finance Bill and again moved a reduction in the standard rate of Income Tax adding to it a rearrangement of Surtax rates. I took them both to a Division, supported by my party. I am delighted as always to be scouting ahead of my party year by year. That was the purpose of my exercise in 1966 and it succeeded in 1967.
I repeat it this year, although in slightly different form and in a somewhat different economic climate. But then we had a new Chancellor of the Exchequer. He is rather different in his approach to matters of direct taxation. He does not share precisely the views and the fiscal philosophy of the right hon. Gentleman the Home Secretary.
We are delighted to see the Home Secretary now present. It is nice of him to blow me kisses instead of the fiscal raspberries to which I have been accustomed in recent years. I was recalling and recounting how, in 1966 and 1967, he listened to me moving reductions in the rates of direct taxation and always treated me with a measure of scorn, and his reply led the Daily Mail to head its reportPoor old Nab—18s. 3d. in the £as though I were pleading my own personal case. I was not. I could not care less. There are lots of ways of making money other than from net income after direct taxation, as the Financial Secretary knows so well. Does the Home Secretary wish to interrupt? It is most improper for him to do so on the Finance Bill.
§ The Secretary of State for the Home Department (Mr. James Callaghan)
I only wanted to say, knowing the hon. Gentleman's capacity for wringing the last ounce of publicity out of any given situation, that I hope he will excuse me if I leave. I came in to ask a question of my right hon. Friend. I am sitting in a Committee upstairs and I do not want there to be any feeling that I am walking out in the middle of the hon. Gentleman's speech.
§ Sir G. Nabarro
I repudiate any suggestion that I desire to wring any publicity out of this speech. I merely observed the right hon. Gentleman's entry and I am delighted to excuse him in view of the importance of his being elsewhere.
§ Sir G. Nabarro
"Magnanimous" would have been the appropriate interjection. I was saying, when so rudely interrupted by the Home Secretary, that there is a marked difference in fiscal philsophy between the present Chancellor of the Exchequer and his predecessor, now the Home Secretary, in this context of direct taxation. The Chancellor is on record at least on two occasions as recognising that very high levels of direct personal taxation are a disincentive to greater effort and harder work.
He resisted the temptation to put up Income Tax this year, for which I and many other people were very grateful; it was sensible of him to resist it. He had told the London Labour Party, on 19th March, 1967, that he thought that any increase in direct taxation could not be conducive to greater output and harder work. In his Budget statement this year he chose his words very carefully, and in that section in which he dealt with the rate of Income Tax he said:No earned income, save for the effects of the recoveries of family allowances, the principle of which had already been announced, will therefore be subject to higher direct taxation. This I believe to be justified on the ground of incentive."—[OFFICIAL REPORT, 19th March, 1968; Vol. 761, c. 296.]The former Chancellor always pooh-poohed that any disincentive was caused by high levels of direct taxation. The former Chancellor was always cheered 1048 to the echo by the hon. Gentleman the Member for Ashton-under-Lyne (Mr. Sheldon) and the hon. Gentleman the Member for Heywood and Royton (Mr. Barnett). They both pooh-poohed the speeches from this side of the House.
§ Sir G. Nabarro
We have another one, the hon. Member for Lancaster (Mr. Henig) as well. We have a professorial and academic voice added to that of the theorist of the chartered accountancy profession, his hon. Friend. The present Chancellor thinks otherwise. The present Chancellor at least has come this far towards Conservative views that the present levels of direct taxation are far. far too high.
My hon. Friend the Member for En-field, West said that our levels of direct taxation are not the highest in the world; but they are the highest marginal rates in the world. There is no country in the world that paid 19s. 3d. in the £ last year on the last dollar or the last £ that was earned in any country overseas. Neither, so far as I am aware, is there any civilised, industrialised and sophisticated community comparable to our own where the level of direct taxation this year leads to a top marginal rate of 18s. 3d. in the £. The Financial Secretary may reply that Albania pays 18s. 6d. in the £, or Guyana 18s. 9d. in the £, but these places are not countries, they are not industrialised, sophisticated communities such as ours.
I re-echo comments—I shall not repeat them in the same terms—made upstairs in the Committee that the men in Britain who earn more than £10,000 a year in industry, trade and commerce are the leaders. They are not generally in those positions because of Etonian ties. Very rarely is that the case. In 95 per cent. of the cases they have come from the bottom, earned their promotion the hard way and are sitting in the top executive position because of their ability to lead men and direct great enterprises. All the efforts of millions of working men and women everywhere are brought to nought without the enterprise, skills, drive and imagination of the men in the top executive chairs—
§ Sir G. Nabarro
The hon. Member for Orpington (Mr. Lubbock) says, "Like Sir Giles Guthrie". I am not talking about nationalised industries. They are a separate consideration. Their executives are underpaid. There is a stigma associated with working for a nationalised industry at the top level. Real, genuine, honest-to-goodness businessmen do not work for nationalised industries. We in the Conservative Party have always been in great trouble, just as the Labour Party has, in finding top executives for nationalised industries. The hon. Member for Orpington will never suffer such disabilities because he will never be in the Ministerial position required to select these executives.
§ Mr. Lubbock
The hon. Gentleman has got me wrong. I mentioned Sir Giles Guthrie only because he is not earning the money that he is paid, in spite of the fact that it is less than many of the hon. Gentleman's friends in private industry.
§ Sir G. Nabarro
I do not think that it would be kind or rational to criticise Sir Giles, who has left his post and is returning to the City. So far as I am aware, he has performed his duties as the head of an air Corporation with distinction and enterprise, notwithstanding all the obvious political disabilities put on him by being head of a nationalised industry.
§ Mr. Harold Lever
Has it escaped the hon. Gentleman's attention, when making his generalised expressions of contempt for the directors of nationalised industries, that the Chairman of the Central Electricity Board recently has been acquired by one of the great, enterprising world-wide outfits in this country at a very high salary after years of public service?
§ Sir G. Nabarro
The F.S.T. must get his facts right. It is not the Chairman of the Central Electricity Generating Board, but the Chairman of the Electricity Council. I presume that the hon. Gentleman is referring to Professor Sir Ronald Edwards. The professor served a long stint as head of the Electricity Council. He did very well. Appointed by a Tory Government, he survived four years under a Labour Government. He has now returned to private enterprise industry, where I am sure that he will do even better. I hope that the F.S.T. will make a recommendation in the proper quarter 1050 to send him to another place as an earnest of the Treasury's approbation for his endeavours.
§ Sir G. Nabarro
I am sorry, Mr. Gurden. I was provoked. I do not think that the F.S.T. is behaving very well tonight. He has been leading me astray.
The fact remains that these punitive levels of direct taxation, Income Tax and Surtax, have three very damaging effects on our national economy. In my judgment, they act as a grave disincentive to further effort at every level, from £1,200 a year up to £100,000 a year, if anyone earns that sum—
§ Sir G. Nabarro
The hon. Gentleman says, "The Chairman of Marley Tiles". He is wrong again. Mr. Aisher earns £91,300. However, I am glad that the hon. Gentleman intervened, because that is a preposterous salary. No one is worth £91,300 a year. But why is he paid that huge sum? It is so that he can have an amount of about £12,000 after tax. That he is well worth. If he had £91,000 gross income in the United States of America, his net income would be about £27,500.
I hope that my hon. Friend the Member for Wanstead and Woodford (Mr. Patrick Jenkin) is working it out to check it. It is no good the F.S.T. shaking his head vigorously. He is trying to catch me out, but I shall tell him how I arrive at this. All the civil servants are at work in the box trying to check the figures. On incomes of that size in the United States the effective rate paid is 70 per cent., subject to marginal influences. About 30 per cent. is the net and, in current vernacular, "take-home pay." Thirty per cent. is of the order of £27,000 to £27,500 related to £90,000. I am not going to argue the case of a man with £91,000 a year. The biggest single disincentive of present taxation in Income Tax is in the case of a man earning between £1,200 and £4,000.
I hope that the F.S.T. will not say that down to 2½d. I am inaccurate, Generally in that bracket, between £1,200 1051 and £4,000, for every additional £ earned the man concerned pays 32 per cent. in tax and retains 68 per cent. Above £4,000 a year the assessable Income Tax and later Surtax over the £4,999 level rises very steeply until the excruciating highest levels I have alluded to are eventually reached. All these levels of taxation are a grave disincentive to additional effort at a time when this country urgently needs greater effort and harder work on the part of men and women at every level of industry.
Personal savings in this country are very poor. This is no reflection on Sir Miles Thomas and the National Savings Movement. Last year they clocked up about £80 million of surplus, devalued in their pockets subsequently. The National Savings Movement and similar agencies, which ought to be encouraged to attract a much higher level in aggregation of personal savings than they are presently achieving, are of course knocked back by the present levels of direct taxation. It is no good the F.S.T. saying, "Oh yes, but the money is not available to save." Look what unit trusts did last month—£28 million in a month with new unit trust saving. I wonder why they are doing so well at a time when National Savings are doing so badly? The hon. Member the professor from Lancaster wishes to interrupt? I will give way at once if he wishes to intervene.
§ Sir G. Nabarro
Thank goodness, I was never an undergraduate at the University of Lancaster. Thank goodness, I did not have to send my sons to that university. I think that a night school course at a Polytechnic would have served them better if the hon. Gentleman were the instructor.
The hon. Gentleman asks what are savings to do with the rates of direct taxation. In words of two syllables, so that he can understand, the lower the levels of direct taxes the greater the sums which will be left to fructify in the pockets of the people and the greater the sums which will be attracted to all 1052 the orthodox methods of saving, led by National Savings.
If the hon. Gentleman does not remember it, let him go back five or six years under successive Tory Chancellors and search out that our average performance year by year was £250 to £300 million a year in National Savings surplus. According to all Chancellors, Tory and Socialist, if they can obtain the money from National Savings they do not have to obtain commensurate sums from taxes. I am sorry that the hon. Gentleman is so exasperated with me. I can understand his exasperation. The present levels of taxes militate against the accumulation of small savings.
Thirdly, the present levels of direct taxation aggravate and accentuate the brain drain of professionally qualified men and women who emigrate from this country. There were 70,000 last year. They were not all highly qualified by any means. A few come back, but the great majority of the immigrants are unqualified. About 90 per cent. of the emigrants are qualified and about 90 per cent. of the immigrants are unqualified. I call that a poor exchange—and I am no racialist.
Why do these people go? Some go because of the sun. Some go because they think that Australia's opportunities are better than Britain's. Some go because they fancy Canada. South Africa attracts a lot, and Rhodesia attracts some. But the major reason that they go—not the only reason—is because abroad they will be able to retain a larger part of their hard won earnings.
§ Mr. Lubbock
If the hon. Member for Worcestershire, South (Sir G. Nabarro) read the report of the Jones Committee, from which I presume he is quoting, it said that the principal reason why young people who are professionally qualified go to the United States and elsewhere is because of the difference in salary structures between ourselves and the States, whereby people early on in their careers get higher earnings over there, whereas their total earnings throughout their careers are not 1053 much different in the two countries. It is nothing to do with taxation. It is the rate of promotion after a person is qualified.
§ Sir G. Nabarro
The hon. Member for Orpington must think that I do not do any homework before I address the House of Commons. The hon. Gentleman spoke about the Jones Committee. I will quote the Jones Committee to him at once. I quote from the Financial Times of Monday, 23rd October, 1967.
§ Sir G. Nabarro
Yes. But the Financial Times is a reputable journal and it quotes the Jones Committee. If the hon. Member for Orpington wishes to say that the Financial Times is mis-reporting the Jones Committee, let him say so, but listen to the extract first.
§ Sir G. Nabarro
As you know, Sir Eric, it is my habit when speaking to gyrate, and though my body was facing you, I had turned momentarily to face the hon. Gentleman.
The article says:High quality staff. On the other hand the Jones Committee does emphasise that tax may well sway high quality senior academic staff and industrial specialists and may influence some people who are deciding whether to come back or not.
§ Sir G. Nabarro
I said that the brain drain was not due solely to the tax factor, but was in part, a major part, due to it.
§ Mr. Lubbock
If the hon. Gentleman studies the OFFICIAL REPORT he will find he said that taxation was the principal reason for it. I agree that taxation is a factor, but it is not a major factor, and if the hon. Gentleman had read the Jones Report instead of an extract in the Financial Times he would know that.
§ Sir G. Nabarro
I shall not weary the Committee by reading the entire Jones Report. I said that this was a major factor. The Jones Report said that it was a factor. The difference between us is minimal. These are all essential ingredients, and my case this evening is 1054 that the House of Commons ought to apply itself once again to the punitive levels of direct taxation extant in this country.
Year by year Tory philosophy in opposition is being moulded, and I am glad to see that it is going in the right direction. The first consideration, as has been brought out in our debates today, and in many earlier debates this year, is that immediately we resume power there will be a switch from direct taxation to indirect taxation. Secondly, there will be a reduction in the rates of direct taxation. My right hon. Friend the Member for Enfield, West in his famous "light at the end of the tunnel" speech said that he would reduce Income Tax by 3d. in the £ this year. Of course the Socialists disagree with that.
§ Sir G. Nabarro
It is a long tunnel with a Socialist Government in office. Mercifully, they will not be there for ever. What I am pleased about is that the Tory Party is moving in the correct direction, which is that at the earliest possible moment we shall reduce the rates of direct taxation, and for the third consecutive year I make this speech drawing attention—
§ Sir G. Nabarro
I shall if the Labour crowd is still there. I doubt it though, and I invite my right hon. and hon. Friends to support me in this matter. I do not suggest that 9d. is necessarily the correct figure for a reduction in Income Tax this year, or that my Surtax figures are necessarily the correct ones, but what I am utterly sure of is that if Britain wishes to make progress in a harshly competitive world it is indispensible that we do not mulct our top brains of more than 15s. in the £ as an aggregation of Income Tax and Surtax. The American aggregation of 70 cents, and if the President's 10 per cent. increase in taxes goes through 77 cents, is still far below the British level, which is the equivalent of 91¼ cents.
§ Mr. Robert Sheldon (Ashton-under-Lyne)
I know that the hon. Member for Worcestershire, South (Sir G. Nabarro) is always so busy with his own speeches 1055 that he cannot read the speeches of others, but, had he done so, he would have known better than to say that I am against, and do not understand, the effects of incentives on the tax structure. I have said repeatedly that, although the Opposition's extreme assertions are wrong, there is obviously some disincentive in high levels of taxation. Rather than making the assertions which the hon. Gentleman claimed—unsupported by any evidence, as usual—I have been anxious to hear how the Chancellor could take this into account.
I have argued for not increasing Income Tax, for, where possible, reducing it, and for making good the deficiency in Corporation Tax. There is a disincentive effect, however, unmeasurable, in Income Tax, and this is greater than the disincentive effect of Corporation Tax. Very few managers feel that their companies have earned enough money and that they can go home or play golf, but this may apply to direct taxation, particularly Income Tax. Any disincentive effect of Corporation Tax could be offset by way of investment grants and other subsidies to particular areas. Therefore, rather than the shift to indirect taxation for which the Opposition argue, I would prefer a shift from Income Tax to Corporation Tax.
Hon. Gentlemen make great play of the incentive argument, unsupported by evidence, except for the kind of distortions of the Jones Report which we heard from the hon. Member for Worcestershire, South. I would rather we found out the facts. This could be done through the Government Social Survey. We know that the Chancellor raises over £12,000 million through taxation, and we have a right to know the disincentive effects of this, so that our taxation system can be adjusted to take account of it. I have ben asking for this for the past two years and more and we should be demanding a answer.
That Budget statement implied that my right hon. Friend accepted some of the disincentive arguments: he did not raise Income Tax for that reason. In that case, he must have felt that the £4,600 million being raised by Income Tax and Surtax was near the limit available to him for incurring the effects which he mentioned.
1056 10.45 p.m.
It is up to us to ask my right hon. Friend on what grounds he made this judgment; on what grounds he felt the limit had been reached where, if Income Tax had been raised any more, a disincentive effect would have been produced against the attempts he was making to extend the growth of the economy. What understanding is there of the way decisions are taken? We must know that this was sometimes a hunch.
We ask what kind of investigation was made? We know that there was none. We consider the work carried out by sociologists in all parts of our industrial economy and social life and we should ask ourselves why their help has not been asked for in this important sphere. We see the many millions of pounds raised and we do not understand the effect of raising this money on the decisions which individuals make as to how they will work, and what the disincentive effect will be.
If any industrial organisation failed to carry out simple surveys of this kind, into where its money was coming from, with market research of the simplest kind, it would be held grossly culpable. This issue is raised year after year. It seems to many of us that the Government fail to carry out this investigation into how the disincentive effect works and how we can make the effects work for the economy of the country.
It is time we insisted that this work be carried out, rather than have these statements made in these debates year after year. Some of the things found out by a survey, by the questions asked, should be: what is the effect on overtime working and does tax have a disincentive effect? Do people feel that workers are not working overtime, which might be in the interests of the country, because of this? A small amount of work done on this suggests that there is no disincentive effect.
This work was done in a small sector and few conclusions can be drawn. We also want to know the real attitude of Surtax payers. Do they decline appointments and promotion? What is possibly more important, do they avoid taking risks? Does it make them more cautious? It probably does, but we have no real evidence for it. That evidence is easily available and can be obtained.
1057 Then there is the question of what kind of misunderstanding there is in the minds of the people as to the level of taxation they are paying. Many people are not fully aware of the marginal rates of tax at certain levels. What is the level of this misunderstanding and how can it be put right? Is it just a grumble? Or is striving for success being affected; and if it is being affected, can it be put right?
These problems are capable of solution and in the raising of thousands of millions of pounds, a few thousands might be spent to great effect in finding some of these answers.
§ Mr. Maude
It seems to me that what the hon. Member for Ashton-under-Lyne (Mr. Sheldon) has said is perfectly true. We need a great deal more knowledge about the effects of high rates of direct taxation on people working, whether on the shop floor or in executive and directorial appointments, but it does not require a great deal of research to know that the marginal effects of high taxation on work, on enterprise, and on initiative, are considerable. Our system of taxation is particularly detrimental because the standard rate has absolutely no justification in logic, financially or economically. Indeed, if it were not for the need for some sort of withholding tax for dividends, it is difficult to believe that we would have our present standard rate system.
Our progressive tax rates go up in a serious of jumps and have a particularly vicious effect at the margins where the jump occurs. On the other hand, I lived for some years in Australia, where there is not a standard rate but a smooth progressive rate of taxation. It is possible for the Treasury to raise or lower the whole of taxation from the very lowest to the top rate of Surtax by 5 per cent. or 10 per cent. in a single Budget without messing about with the standard rate and the lower rates.
At the margin in Britain one gets a disproportionate effect which one does not get: with a smooth progressive code. This effect is particularly bad when one has a high standard rate of direct taxation. It has been less marked over the whole sphere since the minimum Surtax rate on earned income was raised from £2,000 to £5,000, but it is still considerable.
1058 Until and unless we get a sensible system of direct taxation, cutting out the standard rate, with a notional withholding tax for dividends and a smooth, progressive—and, I suggest, a much less steeply progressive—system of taxation, we will continue to have a detrimental effect on overtime earnings and on effort of every kind. Until and unless a Government has the initiative and courage to change the whole system of direct taxation, these difficulties will occur.
If we wish to liberate the energies of our people, we should reduce the standard rate of tax. While nobody, including my hon. Friend the Member for Worcestershire, South (Sir G. Nabarro), would claim to know that the best results would be obtained by a reduction of, say, 9d. in the £ in the standard rate, the marginal effect of such a move, when workers now find that every extra 1d. they earn is charged at 8s. 3d. in the £, cannot be doubted.
I hope that my hon. Friends support the Amendment as a demonstration against a rate of direct taxation which is far too high and which should be reduced.
§ Mr. John Cronin (Loughborough)
I must compliment the hon. Member for Stratford-on-Avon (Mr. Maude) for suggesting that there should be a more smoothly progressive rate of Income Tax, which would obviously be beneficial for the working of the whole tax system. However, it would require more than courage for such a change to be made. It would require a complete change of our whole system of taxation and it would present immense difficulties.
I do not support the Amendment, and I do not believe that hon. Gentlemen opposite seriously support it. They must be aware that a substantial reduction in the rates of direct taxation now would indicate a premature tendency to reflation and, therefore, a run on the £.
§ Mr. Michael Shaw (Scarborough and Whitby)
In which year since the present Government came into power would it have been appropriate under those conditions for us to suggest a lowering of taxation?
§ Mr. Cronin
That is not relevant to the argument. The Amendment would be deleterious now. The hon. Gentleman the Member for Worcestershire, 1059 South (Sir G. Nabarro) has done a very good job for the Conservative Party in moving the Amendment. All those industries, bankers and businesses which contribute to Tory Party funds will say, "Good old Gerald. He's done his stuff. We are on the right side and investing our money satisfactorily." I cannot believe that the hon. Gentleman imagines that the Amendment is in the national interest.
§ Sir G. Nabarro
I will give the exact cost. Reducing the standard rate from 8s. 3d. in the £ to 7s. 6d. would cost £180 million in a full year. Reducing the top level of Surtax so that no one would pay more than 15s. in the £ would cost £4 million only.
§ Mr. Cronin
The hon. Gentleman cannot believe that it is as simple as that. He is completely ignoring the psychological effect, which is the all-important thing for sterling. The hon. Gentleman spent most of his time shedding tears over the unfortunate people who pay 18s. 9d. in the £. It is no part of my brief to speak on behalf of such people.
§ Sir Tatton Brinton (Kidderminster)
The hon. Gentleman mentions 18s. 9d. in the £. I take it that he means either 19s. 8d. or 18s. 3d. Can he be more precise?
§ Mr. Cronin
I accept the correction with pleasure.
I must compliment the Chancellor for not increasing the standard rate, although he may have been under presure to do so. I hope that in the future he will be able to reduce the standard rate of Income Tax. The present high rate has serious disadvantages. Some of our opinions on this side should be revised in the light of modern circumstances. It was Socialist thinking that increases in direct taxation were desirable because it was mainly the well-to-do who paid direct taxation, and normally the mass of the working people paid hardly any at all.
There has been a very big change. Although we are proud that we have a progressive system of taxation, with the heaviest burdens falling on those most able to bear them, there is no doubt that a large part of the population pays Income Tax on a substantial scale. The Report of the Commissioners of Inland 1060 Revenue, Command 3508, shows that those who pay the largest amount of total tax are in the income group of £1,000 to £1,500 a year. Of that group there are 5,900,000 who pay Income Tax. Between them, they pay £770 million out of a total income of £7,260 million, which is more than 10 per cent. of their incomes. Now these are the people, our skilled workers and their wives who are presumably taken as one unit of income, who we should desire to encourage. It is particularly undesirable to reduce their incentive to work. I therefore feel that a reduction of Income Tax, particularly of the standard rate, would have a very direct and beneficial effect of this group of people.
One of the problems of high direct taxation is that it is paid only by a very limited number of the people who should normally pay it. These high rates lend themselves very considerably to evasion and avoidance. For instance, it is very difficult to believe that as much tax is collected from Schedule D as really should be. If hon. Members look at Table 72 of the Report, Cmnd. 3508, they will notice that about 350,000 people in this country either own businesses or are engaged in professions which bring them less than £300 a year income. I find it very difficult to believe that some of these people are not taking part in some form of avoidance or even evasion.
The hon. Member for Worcestershire, South has referred to the brain drain, with 70,000 qualified people leaving the country every year. There is obviously a taxation consideration which must be a motive behind the disappearance of these people overseas. The most important thing, it seems to me, is the actual disincentive effect of high rates of direct taxation on the desire to work, as opposed to the desire to have leisure. It does not require any investigation to come to this conclusion. It obviously must reduce the incentive to do overtime and extra work.
I fully agree with my hon. Friend the Member for Ashton-under-Lyne (Mr. Sheldon) that an inquiry into the precise disincentive effects of direct taxation is desirable. It is something which the Government should have done a long time ago. I recollect that when the Royal Commission on the Taxation of 1061 Profits and Incomes, in a Report about 11 years ago, dealt with this matter, they did so in a somewhat sketchy way and did not produce any real evidence to show whether or not there was a disincentive effect. There is no doubt that there must be a disincentive effect. There must also be, as a result of high rates of direct taxation, a tendency towards consumption rather than saving. Finally, there is also a preference, if anybody does save, to have an asset which produces benefits in kind rather than an asset which produces a monetary return.
A person who has saved £500 or £1,000 prefers to have a motor car which gives him some benefit in kind rather than monetary savings on which the interest is highly taxed. So, from the point of view of incentive, I think it very important, if there is to be expansion of the economy in the future, that there should be some reduction in the standard rate of Income Tax.
Finally, it is important that the Government should think about the political effect of high rates of taxation. There is no doubt that hon. Gentlemen opposite like the hon. Member for Worcestershire, South, do have a willing ear from the public. They say, "Ah! These chaps are in favour of lowering taxation." This has a political effect which cannot be ignored, and I cannot believe it is to the advantage of our party that we should be known as the party which prefers high direct taxation. [HON MEMBERS: " It does."]
I am advising my right hon. and hon. Friends. It is undesirable that we should have this reputation. I accept that the rate of direct taxation is particularly high at present. This has a most undesirable political effect for us on this side of the House.
It seems to me that the very highest good for this country is to continue to have a Socialist Government. Anything which contributes to that summum bonum is something that we should encourage. The political effects of continued high direct taxation will not, therefore, be in the national interests. Finally, I hope that my hon. Friend the Financial Secretary will convey to my right hon. Friend the Chancellor of the Exchequer some of these remarks, and advise him that during the course of what I hope will be the long reign of Labour Government 1062 a time must soon come when direct taxation should be lowered.
§ Mr. Ridsdale
The first thought hon. Members opposite seem to have about anything is, "Let us hold an inquiry." Do we really need to hold an inquiry into the disincentive effects of direct taxation? Hon. Members have spoken to people earning £20 a week, such as railwaymen, many of whom must work overtime to earn that sum, know very well that disincentive effects direct taxation has. That is why I welcome the Chancellor's statement in his Budget speech that he would try to move from direct to indirect taxation, to take many people out of direct taxation. To my mind, that is Conservative policy.
I hope that he particularly had in mind those earning £20 a week. I am absolutely convinced that until we can take out of direct taxation altogether the person earning £20 or even £25 a week we shall not get productivity going to the necessary extent, nor shall we get personal savings at the necessary level.
The hon. Member for Loughborough (Mr. Cronin) talked about the desire to encourage saving, saying that his right hon. and hon. Friends must look to the party advantage. But we must think about the national advantage and not the party advantage. If we think about the national advantage, we must realise that the only way we can encourage personal saving again is to cut back on direct taxation. Saving has fallen in the past few years because of the philosophy of the Socialist Government, who believe that saving can be done only by the Government. That it what is wrong. That is why my hon. Friend the Member for Worcestershire, South (Sir G. Nabarro) was so right when he said that money should fructify in the pockets of the people rather than in the coffers of the State. That is our philosophy, and why we know that Socialism can never succeed.
I feel that this is almost a Second Division debate. I read the OFFICIAL REPORT of the Standing Committee stage. I read with great interest the very eloquent speech of the hon. Member for Birmingham, All Saints (Mr. Walden) and the Chancellor's replies. But the Chancellor has been here for only a very short period today. How are we and the country to know his thinking, when he 1063 speaks upstairs almost in secret, where the Press cannot go, and does not come here to reply—
§ Mr. Harold Lever
The hon. Gentleman is mistaken. The Press not only could go, but every facility of a mechanical kind was given to it to enable it to report our proceedings.
§ Mr. Ridsdale
The Committee stage upstairs was not in the atmosphere to which we are accustomed on the Floor of the House, with the Chancellor here, instead of being closeted in a small room with a few hon. Members and no public in the gallery. I hope that we shall, at this stage and on Report, hear the Chancellor replying to some of our debates. I am disappointed that he has hardly been here all day, particularly so when we are having such an important debate as this.
We are discussing much more than whether taxation should be reduced by 9d. or 6d. in the £. We are discussing the whole philosophy of taxation and finance, and I should like to have heard the right hon. Gentleman. I believe that we shall only go along the right road for the economy if we lower the rates of direct taxation and shift the burden to indirect taxation, when we can shift the burden from those earning £20 a week and give at least some encouragement to them to see their savings in their own pockets and not taken and saved by the State.
§ Whereupon Motion made, and Question, That the Chairman do report Progress and ask leave to sit again.—[Mr. Harper]—put and agreed to.
§ Committee report Progress; to sit again Tomorrow.