§ Mr. John Hall (Wycombe)
I beg to move Amendment No. 1, in page 10, line 23, leave out 41.25 ' and insert 37.5 '.
§ The Chairman
I understand that, with this Amendment, we are discussing Amendment No. 2, in line 23, leave out 41.25 ' and insert 40 ', and Amendment No. 3, in line 23, leave out 41.25 ' and insert 41 '.
§ Mr. Hall
For the benefit of those who, like me, share the late Sir Winston Churchill's dislike for " those damned dots ", the effect of the Amendment is to reduce the standard rate of income tax by 9d. from 8s. 3d. to 7s. 6d.
The cost of this proposal has been estimated, as near as I can estimate it, at about £525 million in 1970–71. Before any hon. Member opposite adds this to the reliefs proposed in the Bill, comes up with a figure of about £770 million, and suggests that it is perhaps too large a sum to offer in reliefs this year, let me make it clear that, if the Committee decided that it was important to give worth while reliefs from direct taxation, obviously the Budget strategy would need to be recast.
We would need to consider, for example, the estimate of consumer expenditure in the current year and whether it is likely that the increase in wages and salaries, now running in excess of 10 per cent., will increase consumer expenditure considerably, or whether rising prices, of which we have had no reliable estimate. are likely to more than offset the impact of rising wages. That is one judgment which would have to be made, and no doubt there would be disagreement between the two sides of the Committee about the answer.
We would have to decide what room should be made for a further growth in public expenditure. In his Budget speech, the Chancellor of the Exchequer said that, in his Budget strategy, he had made allowance for a further modest growth in public expenditure during the current year.
We would have to consider what changes it might be necessary to make in taxes on spending, as opposed to taxes on income and savings. We would have to consider to what extent the buoyancy of the revenue could be further stimulated by the reduction in income tax.
I make these points to emphasise that we cannot consider the total net cost of this proposed tax change in isolation 1071 However, I hope to be able to convince the Committee of the major importance of the proposal, and I have no doubt that my arguments will be strongly reinforced by powerful speeches by my right hon. and hon. Friends.
Last year, my hon. Friend the Member for Walsall, South (Sir H. d'Avigdor-Goldsmid) moved a similar Amendment, though he contented himself with asking for a reduction of 6d. in the standard rate. I have been tempted to increase the bid by 50 per cent. and to ask for 9d. for four main reasons.
The first is that, since the present Government last raised the standard rate from 7s. 9d. to 8s. 3d. in the 1965–66 Budget, the rate has unchanged, and I am sure that, in his heart of hearts, the Chancellor of the Exchequer must be distressed by this standing reproach to him.
My second reason is that the Chancellor must be appalled by the burden of taxation which has been placed on the nation over the years since this Government came to office. Even allowing for the reductions proposed in the present Bill—
§ Mr. Robert Sheldon (Ashton-under-Lyne)
The hon. Gentleman said earlier that the cost of this proposal was £525 million. However, the cost of reducing income tax by 6d. was said by my right hon. Friend in his Budget speech to be £225 million. Therefore, the cost of reducing it by 9d. would be about £330 million or £340 million, surely.
§ Mr. Hall
I would be happy to accept that correction. I made such calculations as I could, and I did not want to err on the optimistic side. I am sure that the correct figure will be given by the Chief Secretary, whose opportunity for calculating the sums accurately is greater than mine. If the figure is nearer to the estimate of the hon. Member for Ashton-under-Lyne (Mr. Sheldon), my argument is strengthened rather than weakened. I am obliged for his intervention.
Moving to my second reason for my optimism in choosing 9d. rather than 6d., I was referring to the burden of taxation placed on the country since this Government came to office. Even with the reductions now envisaged, the burden is still in excess of £3,000 million more 1072 than if the tax rates in force in 1964 had remained unchanged. It is a remarkable achievement that, within five years, the Government can impose such a swingeing burden of taxation on people. In some ways, we must give them our reluctant admiration that they have been able to achieve such a target in such a comparatively short time.
We have in the Government some record holders concerning Budgets. I believe that the present Chancellor of the Exchequer holds the record for imposing tax burdens. In 1968, he imposed a tax burden of £923 million and broke the record that had existed for 17 years. The previous record was in 1951, when the late Mr. Gaitskell introduced a Budget imposing a tax of £400 million. I think that the Chancellor would wish to make another record whilst he is still in office. He would want to establish the record for being the first Socialist Chancellor of the Exchequer to give a worth-while reduction in direct taxation. That is another reason why I put forward the Amendment.
My third reason is that, as an honest man, the Chancellor must be uneasy at the contrast between the promises made to the electorate and their performance.
I hesitate to refer again to that notorious broadcast of the Prime Minister's on 15th September, 1964. I think that it is written on most people's hearts. The implication of that broadcast was picked up in propaganda and speeches even after the 1966 election. There is no doubt that people believed that the programme that had been laid before them by the Labour Party could be carried out without any general increase in taxation. They have been sadly disillusioned, but that is what they believed. I think that the Chancellor, who is a man of honour, would wish to do something, however small, to reduce the gap between the promise and the harsh reality of the day.
My fourth reason for moving the Amendment, and for being so optimistic as to suggest a reduction of 9d., is, to quote the Chancellor's words:We cannot be indifferent to the disincentive effect which very high taxation on earned incomes might have.The right hon. Gentleman said that almost three years ago to the day. I think 1073 that he would find a great measure of agreement on both sides of the Commit- tee for that statement.
The Chancellor has returned to this theme on various occasions. The last occasion on which he developed it to any extent was in his Budget speech on 15th April last year, when he said:I referred last year to the fact that, what- ever the evidence or lack of it, high direct taxation is widely believed to be disincentive, and that this could have a stultifying effect upon the development of the economy. That was one reason why, with considerable difficulty, I avoided increases in direct taxation last year, and why I am not proposing any now. Indeed, I have carefully considered whether, even in a year as difficult as this, it would be justifiable for incentive reasons, and for the encouragement of savings, to mitigate slightly the rates of tax on high earned incomes."—[OFFICAL REPORT, 15th April, 1969; Vol. 781, c. 1031.]The Chancellor having considered the possibility of reducing the rates of tax on high earned incomes in a year as difficult, by his own admission, as 1969, all who listened to him then looked forward with eager anticipation to 1970, and that anticipation was heightened when the Budget speech was prefaced by his glowing account of the strength of the economy. But, of course, we were gravely disappointed, because all that the Chancellor did, in effect, was to take out of tax again those whom inflation had put in, and who will find themselves again in the tax bracket within a matter of weeks. A demonstration of the fiscal yo-yo was not quite what we expected from the Chancellor's previous warnings about the disincentive effect of high tax.
The Amendment gives the right hon. Gentleman the opportunity to think again and to back up his words by deeds. But perhaps this is expecting too much. Per- haps his words on the disincentive effect of high taxation are as meaningless as his words about rising wages, when he warned the nation in his television broad- cast that wages were rising too fast. But he is doing absolutely nothing about it.
Many arguments for reducing income tax have been advanced over the years. None has lost its validity, but perhaps some have lost their impact. Although, during the Tories' 13 years, we managed to reduce the standard rate from 9s. 6d. to 7s. 9d., the rate has never gone below 7s. 9d. over the last 30 years. I am reminded of my maiden speech in this 1074 House 17 years ago, when I referred to Colbert's statement:The art of taxation…consists of plucking the maximum number of feathers from the goose with the minimum amount of hissing."—[OFFICIAL REPORT,. 21st January, 1953; Vol. 510, c. 236.]The taxpayer goose has been plucked at such a high rate for so long as to become almost anaesthetised by the pain. But there is a growing consciousness on the part of this goose that it is becoming more naked and that it is becoming increasingly difficult to grow more feathers.
This is an understandable reaction when we reflect that, although the standard rate has remained unchanged since Labour last increased it to 8s. 3d. in the 1965–66 Budget and despite some improved allowances, as a percentage of the gross national product the amount taken in direct personal taxation has risen from 9.5 in 1964 to 13.4 in 1969. By contrast, the percentage of the gross nati5nal product taken in personal direct taxation during the 13 years of the last Tory Administration, between 1951 and 1965, remained almost unchanged. It moved from 9 per cent. to about 9.5 per cent. during that period.
That is a most interesting contrast. We were able to keep the percentage of income and surtax both as a percentage of the gross national product and as a percentage of personal incomes steady during that time because we reduced the rates during that period from 9s. 6d. to 7s. 9d. and almost doubled personal allowances because savings also increased during that period.
The increase in the amount taken in recent years is due largely, I suppose, to what is called the " buoyancy of income tax revenue," which means that, unless the rates are reduced, the taxpayer is suffering a real, although disguised, increase in taxation. I think that the Chancellor recognised this when he said:The continuing rise in incomes and prices means a more than proportionate inccrease in the yield of income tax—so that the real burden of the tax rises ".—[OFFICIAL. REPORT, 14th April, 1970; Vol. 799, c. 1242.]There is little doubt that this " buoyancy ", when it arises through inflation and is not a real increase in income, creates a genuine sense of grievance, although the cost is not fully understood.
1075 We have considered in our past debates on this subject the evidence of the effect of high tax on what is called the brain drain. The evidence, to a large extent, is inconclusive; but it is generally agreed on both sides that there is some brain drain and that it is more likely to affect the younger able men, both business executives and professional, who believe themselves capable of earning high incomes and, therefore, see a better opportunity of keeping a higher proportion of their incomes by taking their services overseas.
§ 4.0 p.m.
§ Mr. Joel Barnett (Heywood and Royton)
Surely the hon. Gentleman has read the Jones Report on the brain drain, which runs completely counter to everything that he has just said?
§ Mr. Hall
Yes, I have read it, and it is not accurate to say that it runs counter to everything that I have said. As I said, the evidence is largely inconclusive. It has never been denied that it has some effect, although the effect, as the Jones Report showed, is far less obvious than perhaps many people might have been led to expect.
We have considered, also, in the past, the effect of tax rates in force in other countries. We are up against the difficulty of comparing like with like. International comparisons can be pushed too far, as the Chancellor himself said in replying to a similar debate last year. But there is no doubt, to paraphrase his words on that occasion, that our direct taxation rates are in some respects more progressive and heavier than those in other countries. That is not just my opinion: it is a paraphrase of the words which appeared in c. 1276 in our debate on last year's Finance Bill on 13th May, 1969.
The Chancellor has already made it clear that he accepts the disincentive effect of high personal taxation. He shows an awareness of the fact that failure to reduce the standard rate at times when incomes are being pushed up by inflation is the equivalent of increasing taxation. I am sure that he is aware of the particularly harsh effect of a high standard rate over a long period on those on fixed incomes. He must be aware that switching the emphasise away from direct taxation has a favourable effect on 1076 savings, which should allow him or his successors to reduce taxation still further.
And the right hon. Gentleman must feel, as a man of honour—whatever opinion he may have of the electorate's memory or intelligence—that he should do something more to honour Labour's election promises. The Amendment enables the Chancellor to do what he knows, in equity, should be done.
§ Mr. Sheldon
I heard with interest the calculations of the hon. Member for Wycombe (Mr. John Hall), which seemed to spoil his argument. I was not sure whether he started off from the desire to reduce income tax by 9d., or the desire to cut taxation by over £500 million. Assuming that he had £500 million to spend, he could have reduced income tax by nearly 1s. 3d., and could have achieved his goal of obtaining an income tax rate of about 7s., but, by getting the figures wrong, he neither produced what he wanted nor got the accuracy which we have a right to expect from those who speak from the Opposition Front Bench.
I say that we have a right to expect it, but we have not had it in recent weeks. The rot started with the right hon. Gentleman, the Leader of the Opposition, who made the biggest schoolboy howler of all when he talked about £796 million being the current deficit in 1968, instead of the real figure of £309 million. The right hon. Gentleman did not, then or subsequently, seek to withdraw that statement, and I hope that, on this occasion, the courtesy and the gracefulness of the hon. Member for Wycombe will allow rather better standards of accuracy to be obtained from them during the weeks and months of this Committee stage.
We are in a danger of getting into a complete muddle on the whole problem of incentives. In the Budget Statement of 1968, my right hon. Friend used the argument of incentives as a justification for not increasing income tax rates in that year, a time of considerable stringency, when rather large sums of money were needed for the Revenue. My right hon. Friend the Chief Secretary, discussing the negative income tax on Second Reading, pointed out that the incentive argument was the important factor against its introduction. In the same speech, discussing overtime, he brought into use the incentive argument and said that it was a valid 1077 argument in connection with overtime and the disincentive effects of high tax rates upon the working of overtime.
So hon. Members, very senior Members, whose words are heard with great care, are using incentive arguments when it suits their case and not using them when it does not. This happens all over the House and I suppose that I am no exception. What I want to see is some of this £15,000 million which my right hon. Friend raises each year used to carry out some social survey to find out what are the incentive and disincentive effects.
I pursued this last year and the year before. Not making much progress, I dropped the matter, but I am sorry to see that we are in a greater muddle than ever. People in advertising and selling use motivational research with considerable advantages. The Government's Social Survey was, of course, set up to do this work. We can do the kind of work which will show, before we make these vital decisions, whether or not to raise thousands of millions of pounds in this way or that, what people's attitudes are.
Of course, the results will not be black and white—they never are in these cases —but we can get some advantage and put an end to some of the ignorant nonsense which is spoken on this matter. So, if we are to raise large sums of money, we can surely afford to spend trivial sums to check that people are acting as the Government assume they will act. The Government make decisions on the assumptions that people will act in certain ways, and it is worth spending money to find out if they are right.
We can decide to spend money to see whether people are acting under the pressure of incentives as we assume they do in relation to investment grants. This point was well taken by the Minister of Technology, who has undertaken to carry out an investigation into the use of investment grants. I asked for this to be done also in relation to the regional employment premium, and I am now asking for it in relation to income tax. It is the same problem. If we are to make these big financial assumptions that people will act in a certain way, it is worth spending a few hundreds of thousands of pounds to find out whether we can obtain any useful information.
1078 That is all I want, but I am very sorry to see that, although we use the same argument, there is not a whit more evidence this year than last year, or last year than the year before. This should be one of the responsibilities—by no means the most important, of course—of the Treasury.
§ Mr. Hugh Jenkins (Putney)
Would my hon. Friend agree that this investigation might take into consideration the possibility that failure to increase surtax rates at the higher levels may be a disincentive at lower income levels?
§ Mr. Sheldon
All this can be subject to examination and investigation by some of the many techniques which are used in this sphere.
I turn now to the shape of the income tax structure. We all know that these nonsenses are faced by any Chancellor during the short term in his period of office. He tries to get at some of the essentials, which is all he can do in that limited period, and he does not always take into account the big opportunity open to him to shape income tax to produce the kind of varying rates of taxation which we require.
The present system of income tax started, before my right hon. Friend's proposals this year, at a fairly low level of incomes; this means that the marginal rates for people coming into tax were at a fairly low level. They started climbing at about £2,000 to £4,000, and the rates of tax rose considerably. The percentage of income going in tax rises most considerably at the level of between £3,000 and £8,000 a year. Thereafter, it begins to taper off as the highest levels of surtax are reached. It finishes its tapering off at 18s. 3d. in the £. That is the shape of the curve.
The curve is so shaped because succeeding Chancellors have tinkered with it from time to time. This curve can be any shape that we want. We can decide that a person on such-and-such an income should pay a certain amount of tax. This is the most elementary proposition of all. However, if my right hon. Friend tried to carry this elementary proposition into effect he would be unable to do so, because the whole structure is involved. If he decided to give the man on £4,000 such an increase, automatically the man on £7,000 or £8,000 1079 would get an even larger increase. My right hon. Friend cannot change the shape of the curve.
If there is one most elementary thing that any Chancellor ought to have under his control it is the control of deciding what levels of the community pay what levels of tax. It is the most elementary duty of the Chancellor to get that simple proposition put into effect. However, the structure of the tax is so awful and so antiquated that he cannot do even this. Therefore, when my right hon. Friend set out to help those at the bottom—in this action he was applauded—he distorted even further the shape of the curve. However, he took this step for a very good reason.
What we want to ensure is that Chancellors in future will be able to produce a scheme which can provide for any rates of tax that a Chancellor thinks fit for any levels of income. This is by no means a difficult proposition. It is much easier, for example, than the measures carried out by the Finance Act, 1965. What we need is a percentage of income tax payable for each level. This can be done, but not by the use of complicated slices. Slices bring their further complications. We can have percentage systems.
Unfortunately, this Chamber is not the place where systems of this kind can be elaborated upon, because one has difficulty in presentation. If a Select Committee were examining methods such as these, we might have a better understanding and discussion of some of the crucial problems in taxation which are at present denied to us. So we are stuck with the present system of income tax. We must hope that eventually we shall get the kind of examination for which so many people are pressing.
§ [Mr. HARRY GOURLAYin the Chair]
§ 4.15 p.m.
§ Sir Eric Errington (Aldershot)
Does the hon. Gentleman realise that the question of the administration of the Inland Revenue was examined by a Select Committee? The conclusion arrived at was that it would take three or four years to put any change into effect.
§ Mr. Sheldon
Yes; I read the Report of the Select Committee, of which the 1080 hon. Gentleman was the distinguished Chairman. I will not say that I fully accept the arguments used by the Inland Revenue. It is not an uncommon experience, when one is asked if one is overworked, to reply in the affirmative. I believe that there was not quite sufficient investigation as to the point the Revenue made in that connection.
I believe, though, that the Revenue needs breathing space when major reforms of taxation are introduced. I am saying, not that changes should necessarily be introduced now, but that work on this should be in process. Putting any change into effect comes later. What worries me is that preparation, which must antecede the result by some months, is not being done.
A very interesting Written Answer given to the hon. Member for Worcestershire, South (Sir G. Nabarro) gives the proportions of tax as they have changed over the past few years. One of the things that bother me is the mild switch —I would not dream of blaming my right hon. Friend the Chancellor for this —away from direct taxation in particular to purchase tax.
I regret this, because I believe that the present excessive hostility to income tax and the very high rates of income tax, although this feeling is always there, because everybody objects to paying income tax, is based upon a lack of expansion of the kind that I would hope to see. At periods of high rates of growth, high levels of income, and high increase in productivity, I believe that income tax would be no more reacted against now than it has been in the past. Because of this, and because of the ways in which income tax can be the fairest kind of tax, I hope that we shall proceed once again in due course to the use of income tax as the main weapon of taxation and increase it further in comparison with other taxes.
§ Mr. John Nott (St. Ives)
What is the hon. Gentleman's objection to leaving more money in people's pockets and letting them decide how they spend their incomes? Why does he want the Government to take it all? Why does he want the Government to decide? This is the argument between income tax and purchase tax.
§ Mr. Sheldon
The hon. Gentleman does not seem to have read the Written Answer to which I have referred, which dealt merely with the percentages of tax raised, by comparison one with the other. I am comparing income tax with purchase tax, income tax with petrol duty, income tax with selective employment tax. Whether we raise a large sum of money by way of income tax or a relatively small amount does not affect the argument. Given the sum of money it is desired to raise, I want to see an increasing proportion of it being raised by direct taxation.
What we are seeing at present is this move away from that because the rates of growth and the rates of increase in consumption patterns, in wealth, and so on, have not been as high as we hope will be the case not too long from now. [Laughter.] Yes, we have the basis for very rapid expansion. Expansion itself will follow in due course. We now have the opportunity to make use of this as a means of getting a larger proportion of taxation raised by way of income tax. I hope that we shall once again choose this happier of the several evils before us.
§ Mr. John Hall
The hon. Gentleman cast some doubt on the figure I quoted at the outset of my speech for the cost of implementing the Amendment. At that stage I did not wish to intervene to correct the hon. Gentleman, because I was sufficiently modest to think that I might be mistaken. Having looked again at the figures, I think that we are both right; because we are taking a different basis of calculation.
I arrived at the figure of £525 million —the higher estimate of the cost of implementing the Amendment—by taking into account the Budget changes whereby most of the reduced rate stand is now charged at the standard rate. The lower figure to which the hon. Gentleman referred relates to the change in the standard rate as an alternative to the Budget proposals—that is, with the retention of the reduced rate unchanged by the Amendment.
As I say, I think that perhaps we are both right in our bases of calculation; but, in my view, the figure I quoted is more likely to be the actual cost of implementing the Amendment. No doubt the Chancellor will confirm or deny this.
§ Mr. John Boyd-Carpenter (Kingston-upon-Thames)
Amendment No. 2, which stands in my name and which the Chairman directed should be taken with Amendment No. 1, is a more modest affair than Amendment No. 1 and proposes a reduction of only 3d. in the standard rate of income tax. Perhaps it is more modest because I am a more modest man than my hon. Friend the Member for Wycombe (Mr. John Hall).
As to its cost, in view of the exchange which has just taken place between my hon. Friend the Member for Wycombe and the hon. Member for Ashton-under-Lyne (Mr. Sheldon). I must put it on alternative bases. On the basis adopted by the hon. Member for Ashton-under-Lyne, who, I think, based himself on the Chancellor of the Exchequer, its cost —I am subject to correction by Treasury Ministers—would be about £112 million to £115 million a year. If one adopted my hon. Friend's more sophisticated intellectual processes, it would be appreciably higher, but I leave that calculation to the Chancellor, who has the advantage of sources of advice and of calculation not, for the moment, open to me. However, it is a smaller proposition, simply 3d. off the standard rate.
If the Chancellor were to rise and say that he will accept my hon. Friend's proposal to reduce the standard rate by 9d., I should not wish to interfere with him in that benevolent act. Indeed, were he to do so I should be only too glad to withdraw my more modest proposition. On the other hand, the Chancellor may well think—and here, I come to the first point that I want to put to him—that whereas so large a change as my hon. Friend proposes might not fit in with his own ideas on the conduct of the economy, a reduction of 3d. in the current year is a reasonable proposition, perhaps subject only to the criticism that it is over-modest.
I know that it used to be the common form, or conventional wisdom, in Budget debates that wherever any hon. Member proposed a reduction in taxation the Chancellor would say, " Either you must challenge my Budget judgment, or you must suggest some other increase in taxation to compensate for the loss of revenue resulting from the reduction which you are proposing." The Committee will recall that this dialectical device has served 1083 successive Chancellors of the Exchequer and Chief Secretaries remarkably well in the past.
I do not think, however, that it is material to this afternoon's discussion, for this reason. I hope that the Chancellor will not think it personally offensive, because it is not so intended, if I say that there was an air of utter unreality about the part of his Budget speech in which he set out his Budget judgment. He came to the conclusion, having dealt with the matter with a lucidity and style which the whole Committee envies, that he could release—I shall not use the phrase " give away ", because the money is not his to give away—purchasing power of about £200 million in a full year, and he based his proposals on that Budget judgment.
I do not think that there was one hon. Member who did not realise how artificial and arbitrary that figure or, indeed, any figure, is in the circumstances of this year. With wage inflation galloping, as the Chancellor acknowledged, with the amount going into consumption through massive wage increases rising every week, and with no one, and particularly not the Chancellor, giving us any forecast of how far these will go in the course of the year, is it not wholly artificial to say that the release of £200 million of purchasing power is right, wise, and sound, and that £300 million to £320 million would be wholly unsound? The truth is that nobody, not even the Chancellor, can, in the circumstances of this year, be anything like as precise.
If one is dealing with the sort of figure which my hon. Friend the Member for Wycombe suggested of £540 million, it is arguable that a change of that order has some relevance, but with a figure of £200 million, £300 million, or £400 million, in the circumstances of this year, with the uncertainty which has resulted from the collapse of the Government's incomes policy, I should not have thought that it was worth wasting the time of the Committee arguing this degree of divergence from the Chancellor's Budget judgment. The truth of the matter is that neither the Chancellor nor any hon. Member of the Committee knows with any degree of accuracy how much additional purchasing power will be released in the course of the present financial year.
1084 Then we come to the justification for a reduction, however modest, in the level of direct taxation. I always listen with interest when the hon. Member for Ashton-under-Lyne speaks on these matters, because he is both clear and interesting. I differ from him wholly, however, in respect of what he said about the balance between direct and indirect taxation. I agree very much with the intervention of my hon. Friend the Member for St. Ives, which the hon. Gentleman did not answer. Surely it makes for a healthier economy if, in increasing degree, people are able to retain and spend as they think fit what they have earned, and the necessary State revenues increasingly fall on consumption rather than on earnings?
If that affects the index of retail prices we have, of course, to cushion those who will be adversely affected by improving social benefits. When Lord Butler, as he now is, in his enormously important Budget of 1952, did away with a great many subsidies—and doing away with subsidies is rather similar to increasing indirect taxation—by means of substantial social service increases he took care of those who would otherwise be hurt by the changes, and left the rest of the community free to lay out their money in increasing degree as they thought fit.
There is also the point to which the hon. Member for Ashton-under-Lyne did not direct his mind, that that kind of approach helps savings. The man who has substantial earnings and keeps a substantial share of them will know that he will pay no further tax if he does not spend the money but puts it into savings. This is a positive incentive to save rather than to spend. It is a platitude of the debate—I apologise for mentioning it—that all Chancellors of the Exchequer, and notably the Chancellor's predecessor, have again and again emphasised that the higher the level of saving the lower need be the level of taxation. This, therefore, seems a strong argument for reducing the level of direct taxation.
§ Mr. Barnett
The right hon. Gentleman said that it is possible to cushion those who would be hurt by increasing social benefits. He will be aware that about 8 million people do not pay income tax, and that many millions more would get a very little relief from the Amendment, 1085 or from taking 1s. off the standard rate. How would he help those who would not get any benefit from social security? Or is he proposing that these millions of people should be subject to social security?
§ Mr. Boyd-Carpenter
I am suggesting though I shall be reproached by the Chair if I go too far in this direction, that we should combine taxation policies of this kind with considerable developments of social security, including—and this affects the hon. Gentleman's calculation—family allowances, which is the form of social security which has the peculiar merit that it is payable to people on low earnings though in full work, and to people who are therefore the most vulnerable, if they have families of any size, to a rise in prices.
It is possible—and I commend to the hon. Gentleman the experience of 1952 to which I referred—when making changes of this kind, with intelligent administration of the social services, linked with taxation policies of this kind, to secure that those who are in a position to earn are stimulated to better earnings and better savings, while hardship is avoided for that section of the community which is not in a position to earn, or to earn adequately.
§ Mr. William Baxter (West Stirlingshire)
I am interested in the right hon. Gentleman's line of argument. There is another section of the community which he must bear in mind. I am thinking of the widowed women and the elderly, who have set incomes. If increases in the cost of living result from an adjustment of taxation, surely that section would need to be helped? Has the right hon. Gentleman anything to say about these people?
§ 4.30 p.m.
§ Mr. Boyd-Carpenter
I am not absolutely certain which section of the community the hon. Member has in mind. There are, of course, the age allowances and age relief for those on quite modest incomes who otherwise would be in the taxation field. I have the strongest enthusiasm for relative as well as absolute increases for the older pensioners and equally for handling, through the supplementary benefits scheme, problems of the very old whom I think the hon. Member has in mind.
§ Mr. Baxter
They are relying entirely upon a few pounds invested here and there to give a reasonable income. This cannot be increased, but if the cost of living goes up many of those in a small but important section of the community would be in difficulty.
§ Mr. Boyd-Carpenter
I agree that they are very important. Let us divide them into two. There are those in the taxation field, which goes down very low in spite of the Chancellor's concessions. They get income tax relief and age allowances. For those below that the disregards allowed for supplementary benefit are now too low and require adjustment upwards. I have cases of the kind described by the hon. Member in my constituency. They would be very substantially helped by tackling the problem of disregards. If the hon. Member asks my views on this matter, I should say that this is the main method by which I would tackle them.
A further argument for attacking the level of direct taxation is one with which the Chancellor is, I think, very familiar. In an age of inflation there is an automatic increase in the burden of any progressive system of direct taxation. People whose earnings have not risen in real terms, have increased money earnings. They are raised automatically year by year, if the Chancellor does just nothing, into higher levels of taxation, and a higher proportion of their incomes becomes subject to tax.
Unless the Chancellor of the day is continually making reductions in the rate of direct taxation, there is an automatic increase in the gravity of the burden even for those whose incomes have not in real terms increased and which in some cases have decreased. I am sure the Chancellor understands this.
I agree with the hon. Member for Ashton-under-Lyne that more scientific research into the whole impact of income tax legislation should be done, but I think that the Chancellor has accepted that there is a harmful, or possibly harmful, effect on our economy from these rates of income tax. He went on to say, in the paragraph immediately following that quoted by my hon. Friend from the Budget statement last year:I have come to the conclusion that, desirable though such a reduction would in many ways be, I must concentrate this year on more vulnerable sections of the community. I would 1087 emphasise, that I regard an increase in one of the earned income allowances as a high priority for a later Budget."—[OFFICIAL REPORT, 15th April, 1969; Vol. 781, c. 1031–2.]It is a great pity that the Chancellor has not tackled that in this Budget, despite his acknowledgment of the need to give it high priority. I hope that before this debate ends we shall hear from the Chancellor what has caused him to change his mind. He undoubtedly caused the House to think last year that he was contemplating in the near future, as soon as he had money to dispose of, moving in this direction. The fact that he appeared to wrestle with himself at the Box unsuccessfully last year, when he had no money to give away, must indicate that last year he felt that these arguments, some of which my hon. Friends and I have been using, have real force and that the strength of our economy would be greater if earnings at all levels bore less taxation than they do at present.
I quoted in the Budget debate comparisons in respect of taxation on the higher levels of earnings between this country and our main competitors. I will not weary the Committee by repeating all the figures, but they are very striking as one gets to the higher levels. It used to be the case in the party opposite that there was no sympathy to be had for those on the higher levels. It was suggested that no one should have earnings of that kind. Experience in government has, I gather, taught them differently. Certainly, Ministers now cannot take that view. They are responsible, rightly in my view, for paying pretty substantial salaries to the heads of nationalised industries, sometimes in excess of £20,000. They must accept that there are numbers of people who are worth salaries of that kind.
It makes a mockery of paying salaries of that sort if we take from those people by very high progressive taxation such a high proportion as is taken at present and a much higher proportion than our main competitors take from comparable people in their countries. The advantage of reducing the standard rate as we have suggested is that it would give some help and encouragement in the income tax scale from the bottom to the top.
In all seriousness, I put to the Chancellor that if he is concerned, as he must be with his sources of information, about 1088 certain tendencies and aspects of the economy and feels, as he felt last year, that he wants to give a modest encouragement to workers, earners and producers at all levels from top to bottom, here is an instrument to his hand.
I think it a pity that he did not take this initiative at least to this modest degree and couple it, as my right hon. Friend the Member for Enfield, West (Mr. Iain Macleod) said in the Budget debate, with social security improvements to aid those whom taxation changes cannot aid. Be that as it may, here is a chance to do something to give a stimulus to our flagging economy.
§ Mr. Nott
The hon. Member for Ashton-under-Lyne, (Mr. Sheldon) raised the whole question of taxation and incentives. To some extent I agree with him, because to ask whether individuals would work harder if personal taxation were lower is rather like asking if a soldier would fight harder if he were paid more, or whether a curate would preach harder if the Church Commissioners upped his stipend.
No one knows the answer. Such research as there has been on incentives, by the Royal Commission on Taxation of Profits and Income and others, has been very limited and on the whole completely inconclusive. I very much doubt whether a survey of the sort suggested by the hon. Member would produce any of the answers he seeks. In the end, I think that all of us would have to make up our minds on incentives one way or another. I doubt whether motivational research on the issue would take us very far.
§ Mr. Sheldon
It may well be that we would not get a great deal of results to be evaluated at the end of the day, but when spending these amounts of money some part should be related to research of this kind, because the incidental answers produced might be of value.
§ Mr. Nott
I have no objection to research of this kind; indeed, I would favour it.
Political Economic Planning is attempting to raise funds for this type of research. I should prefer sums to be raised by P.E.P. rather than by a Government Department for this purpose. However, if the hon. Member wants it and it would not cost too much nor raise public expenditure, I take the point he made.
1089 I have no doubt that if the Church Commissioners were to up the stipend of curates it could be that they would intone more piously and soldiers might fight more fiercely if their pay was increased. But it could also be that both the curates and the soldiers would find a way of spending their additional money in extra leisure, so who can say whether the effect would be this or that? Nobody knows.
What seems likely, however, is that a higher disposable income for the people, or for the soldiers or curates I have mentioned would be likely to raise standards generally and change the attitudes of those affected, because it would extend the range of personal choice. Therefore, we must return sovereignty to the individual as my right hon. Friend the Member for Kingston-upon-Thames (Mr. Boyd-Carpenter) has said.
Up to half the average person's income is taken from him in taxes, rates and contributions of one form or another. All that is left to him is anex post factoexpression of approval or disapproval of how the politicians have spent half his income at a five-yearly General Election. We should be seeking to return sovereignty to the individual so that our tax system no longer reflects a sort of benevolent State paternalism, under which the Government spends large sums of money on behalf of the individual.
If given a choice of a net disposable income of £1,000 a year or £1,100, most normal human beings—and in that definition I charitably include some hon. Members opposite—would choose the higher sum. Some hon. Members would no doubt donate the extra £100 of disposable income to the poor. Some of them, being truly representative tribunes of the people, would spend it, like their electorate, on bingo. Fine. Others would no doubt save it and put it in a sock under the bed. But they would be saving more and spending less, and in the process losing it from inflation, thereby achieving many of the Chancellor's economic objectives.
Those who spent it on bingo would at least be certain of some prize, and would be providing betting revenue duty to the Exchequer. That is an area of certainty both for the individual and the State which is not necessarily present 1090 when the Chief Secretary gives money for the development of Concorde and for saving Cammell Laird. These are exaggerated examples. I do not mean to dwell on them, but I want to show that private expenditure and saving are no more and no less likely to be in the national interest than Government expenditure and saving, and that assuming private and public expenditure and saving balance, the net result is only to extend the range of individual choice and limit Government choice. That is a wholly desirable objective, because the State should be the servant and not the master of the people.
The Chief Secretary and the Chancellor between them have, so their colleagues tell us, been very tough on Government expenditure. The Chief Secretary is now being touted around by the Prime Minister to cost the Conservative Budget. Before he takes on that job he should seek the professional advice of Mr. Aubrey Jones and get himself a 10-year service contract with some good compensation clauses, because he may not keep the job for very long.
If the Chief Secretary returns to private practice in June or October, or even May, 1971, he will be in great demand not by the new Conservative Government to cost their Budget but by businessmen like me, because he has great experience of writing, off revenue losses against capital, at the expense of the taxpayer, without any penalties: the railways, the airlines, the lot—you name them and the Chief Secretary has written off large sums of money. It was he who steered through the House with great ability the 1966 Finance Act, which made that almost impossible for private firms. So he will be in great demand. I look forward to meeting him in his private capacity.
I make my remarks primarily about the right hon. Gentleman, because he has held his office throughout the period of the Labour Government. While he has held his job the proportion of personal tax related to the gross national product has risen from 12 per cent. to 164½per cent., wholly because he and his colleagues were initially unable to control public expenditure, and then, having got it under some control, largely while 1091 the present Chancellor was in office, they have had to tax more and more to withstand the inflationary spiral which the Chancellor's predecessor and the Chief Secretary were responsible for setting in train.
The Chancellor is bound to say that average rates of tax generally in this country are lower than in some other European countries. But we are debating personal rates of tax. A person in the United Kingdom with an income of £2,500 a year, which is not a colossal income, pays 22 per cent. in personal tax. Comparative figures are 8 per cent. in the United States, 12½ per cent. in Germany and 5.4 per cent. in France. So there can be no doubt that the person earning £2,500 a year is paying a much higher proportion in personal taxation than his counterpart in the United States and European countries.
§ Mr. J. T. Price (Westhoughton)
Does the hon. Gentleman include in that analysis the indirect taxes the individual is paying in the countries he is citing? He should quote the whole composite picture of direct and indirect taxation, and not one segment.
§ Mr. Nott
I am trying to keep in order. We are discussing personal taxation. I said several times that I was referring to the proportion of personal taxation taken from the individual in the countries I mentioned and in this country.
I would be delighted on some other occasion to discuss the point the hon. Gentleman makes, because it is interesting and brings me logically to my next point, the whole question of marginal rates of tax and not the average rates of tax. It is the marginal rates that show up the deficiencies of our system.
The Chancellor has scored another first for Socialism in this year's Budget. To an acknowledged record rate of marginal tax on the highest incomes he has added the highest level of marginal tax in the Western world on the low-income-earner. I am aware of no other country in the Western world where an extra £1 of income can change a person's tax status from a nil assessment to one of practically one-third of his income—6s. 5d. in the £—before allowances. This is a solid Socialist achievement brought 1092 about by the abolition of the reduced rate band.
Now I will make a point of no partisan consequence. Hon. Members opposite may even agree with it more than some of my hon. Friends do. We go through the exercise of discussing year by year personal taxation and its marginal rates almost oblivious of the fact that our discussions are to a large extent only partly relevant for many people earning between £15 and £25 a week. This is because we exclude the whole question of welfare contributions and benefits. It is impossible to make constructive progress in these debates when we have simply to debate the reduction of income tax without referring to contributions and benefits. We are trying to discuss an issue which cannot be discussed in isolation.
The highest rates of marginal tax in this country—and I use the term " tax " to include any compulsory levy upon the citizen which is directly related to his income and his work, namely, income tax, pension contributions, and national insurance—are upon the average wage-earner. It is the average wage earner who can bear the highest rate of marginal taxation. He can in certain circumstances bear a higher rate of marginal taxation than the surtax payer at 18s. in the £, and I shall show how. The simplest example is that of the earnings rule related to the retirement pension, which may produce a marginal rate of 100 per cent. at certain income ranges. If a pensioner earns more than a certain amount, he loses his pension altogether, or a large proportion of it. This can produce a marginal rate of 100 per cent.
I have no time to quote the latest pamphlet produced by the I.E.A., but I hope that hon. Members will read it. It is by Professor Prest and is called " Social Benefits and Tax Rates ". I will give two examples. There are in the pamphlet a large number of tables showing implicit marginal rates of tax upon wage earners earning between £10 and £30 a week. If rent and rate rebates, uniform allowances, student grants, supplementary allowances and the rest are taken into account, it is possible to show that persons earning between £10 and £30 a week can, in certain cases, pay an implicit marginal rate of over 100 per cent. on every extra £ of income. While the implicit marginal rate is zero for the 1093 provision of school meals at £16 a week, it is 75 per cent. when the man gets to £17 a week. So we have these debates on reduction of personal taxation—of which I am in favour—but what we are talking about is a subject which cannot be isolated from the whole question of social contributions and social benefits.
The problem of the aggregate marginal taxation rate, which includes social contributions and social benefits, dwarfs the subject of income tax, since it covers the majority of families. The working man is right and the politicians are wrong. The working man looks at his disposable net income after tax of all kinds and knows that he is paying far more on his incremental earnings than the politicians and the experts claim.
The Inland Revenue sends out this form I have here, which is nothing more than Socialist propaganda, to tell people that they do not understand what rates of tax they are paying and that they have it all wrong. But the working man has got it right. He looks at his net disposable income, and if one takes into account the social contributions and social benefits, tax and everything else, he is right and the politicians are wrong. He understands what he is getting and knows perfectly well that he is not getting in his pocket what the Chancellor and the Inland Revenue tell him that he is getting.
I conclude my commenting on the outstanding feature of our tax system. It is, indeed, the outstanding feature of all high taxing modern States. It is that a reasonable progression in a personal tax system is becoming steadily more difficult to achieve every year, and when the hon. Member for Ashton-under-Lyne says that he would like to feel that the balance was more weighted towards direct taxation, I reply that it is becoming increasingly more difficult to have a progressive income tax system. The reason for this is that inflation is all the time moving more and more people into the tax net on the one side, and, on the other side, individuals who pay tax are paying more and more—I am talking now of real terms. They are paying a greater and greater proportion of their real income in taxation even if the standard rate is not going up and remains static.
Modern States are demanding more and more revenue, have to get it from somewhere and are attempting in part to get 1094 it from the income tax payers. The system is out of hand. As demands by modern States for more revenue increase, greater taxes will have to be imposed upon the average wage earner and the poor if the State levies such a high proportion of gross national product in tax as it is levying now.
I see that the hon. Member for Salford, West (Mr. Orme) nods. I would point out to him that if all incomes over £5,000 a year were to be confiscated by the State, so that no one had more than £5,000 a year, this would only mean that each individual in the country got about 12s. a week more. This is because 80 per cent. of the yield of the revenue comes from people whose incomes are £2,000 a year and less. I believe that one can apply this argument also to a proposed wealth tax. But it would do no good because the savings ratio would fall. There would be less savings and the poor people one was trying to help would be poorer and not better off by taxing the rich in the way the hon. Gentleman wants to do.
A Conservative Government would be determined to reverse the trend to a larger public sector. A Socialist Government might hold public expenditure, but would not reverse the process and start reducing the size of the public sector. If we do not reduce the size of the public sector, I do not see how it will be possible not to levy higher taxes on expenditure and on employment, which is very much more regressive than higher taxes on people's personal incomes.
The Chief Secretary to the Treasury started as a poacher—as an accountant, which is an honourable profession. But he has turned gamekeeper, not of the sort Lady Chatterley would approve of but of the sort employed by the Forestry Commission—reliable but dull. I cannot use a term that was once used by Mr. Aneurin Bevan, but I would say that the Chief Secretary has become a predator. He is robbing the rich fairly successfully and there is not really very much more robbing of them that he can do. Soon, he will have to start on the poor.
I look forward to the day when my right hon. Friend the Member for Enfield, West (Mr. Iain Macleod), who really is true game as opposed to a predator, who may occasionally appear to be hatching something, is in office. He 1095 is hatching some golden eggs. If we win the election, as I know we will, I look forward to a radical recasting of the personal taxation system and to tackling the crucial need for personal incentives and the relationship of the tax system to the social security system. When that happens, these debates will become more meaningful.
§ 5.0 p.m.
§ Mr. Barnett
I am always delighted to follow the hon. Member for St. Ives (Mr. Nott), who puts forward interesting views on the tax system. I thought that he was a little unfair to my right hon. Friend the Chief Secretary to the Treasury in his comments about my right hon. Friend's sexual abilities. I was surprised to hear him using the ringing phrase that we need to return sovereignty to the individual. That sort of phrase is more suited to the hon. Member for Worcestershire, South (Sir G. Nabarro). It is a fine-sounding phrase, but the hon. Gentleman should examine what, in practice, for example, taking 9d. off the standard rate of income tax would do for the individual, not even for the lower-paid worker.
The average worker on £25 a week with two young children under 11 would get about 4s. a week. The right hon. Member for Altrincham and Sale (Mr. Barber) waxed lyrical about what the 3s. a week would buy, which the Chancellor was giving away, when he talked of people being able to buy a bottle of H.P. sauce and some candyfloss. I do not know what he imagines people will get for 4s., but, certainly, it would not be a great deal for that average worker. So returning sovereignty to the individual is not evident in the Amendment.
I am a little sad that, despite all the evidence in our debates in recent years, the disincentive effect of direct taxation has not been proved. One needs to be somewhat sceptical of the degree of disincentive in the levels of direct taxation. We still have that argument. Today, we have had once again the argument about the brain drain, despite the fact that there has been a good deal of evidence that this is far from being the major reason why people emigrate. We have not yet had an international comparison, except in a minor way by the hon. Mem 1096 ber for Wycombe (Mr. John Hall), who quoted somewhat out of context.
If one takes £2,500 as a particular income, which is hardly typical in this country anyway,and then ignores, because one is discussing only the standard rate of tax, all other taxation and social security, one can do anything with the statistics. One says, " I cannot discuss that now; I am only discussing the £2,500 a year man, because I am discussing the question of taking 9d. off the standard rate." This is juggling with figures and it is unworthy of the hon. Gentleman. He would recognise, if he discussed the matter in its proper context, that the disincentive argument is far from proven. But we still get this argument for switching from direct to indirect taxation.
The right hon. Member for Kingston-upon-Thames (Mr. Boyd-Carpenter), whom I hold in the highest regard as Chairman of the Public Accounts Committee and for other reasons, sought to argue that, because the Chancellor could have been incorrect in his Budget judgment that £200 million was the amount which he could " give away "—or the other phrase which the right hon. Gentleman used—this year, he could have been wrong. Of course he could. Before the Budget, I recommended to my right hon. Friend that he should give away more, but, although he could be wrong to the tune of £100 million either way, to suggest that he could have been wrong to the extent of £540 million without it affecting his Budget judgment is perhaps going a little far.
§ Mr. Boyd-Carpenter
The hon. Member must have misunderstood me. I made the specific point that my Amendment, costing, on his hon. Friend's calculation, about £110 million or £112 million, was within the ambit this year of uncertainty in the Chancellor's Budget judgment. But I went out of my way to concede that the £540 million to which my hon. Friend the Member for Wycombe (Mr. John Hall) referred, would raise different considerations. I think that the hon. Gentleman must have misunderstood me.
§ Mr. Barnett
The hon. Member began by quoting £525 million and I assume that his argument was based on that £525 million. If it was not, his calculations were clearly based on a false premise. He started with that figure and I assume that he had it written into his speech, until he went out and got another one or told us how he found it.
§ Mr. John Hall
The hon. Member is getting confused. My figure throughout was £525 million. I sought to verify that and intervened to explain it. The Amendment to which my right hon. Friend the Member for Kingston-upon-Thames (Mr. Boyd-Carpenter) addressed himself was a different one, proposing a different reduction in tax, and was referring to about £100 million—£120 million, which my right hon. Friend thought would be well within the Chancellor's Budget judgment.
§ Mr. Barnett
I am doing the hon. Gentleman the credit of assuming that, as he used £525 million, he assumed it to be within the Budget judgment of his right hon. Friend the Member for Enfield, West (Mr. Iain Macleod). If it is not within what his right hon. Friend would have construed as his Budget judgment, perhaps the right hon. Gentleman will explain to us in due course what figure he did have in mind. But, judging from his speech, either the hon. Member for Wycombe differs from his right hon. Friend, or the basis of his judgment is giving away an additional £525 million, not to mention all the other figures which we will get in later Amendments. So the Budget judgment of the right hon. Gentleman is clearly very different.
Although this debate has not been quite so bad as some in recent years, the reason that I am sad about these arguments on switching from direct to indirect taxation is that we should examine new methods of personal taxation. That is why I was very pleased to hear the hon. Member for St. Ives talk about the other aspect as well—social security benefits. Clearly, this is part of the whole scheme of taxation in the wider sense of the word.
One of the things which make these debates about knocking 9d. off the standard rate rather sad is that they show a total lack of understanding of what 1098 effect it will have and of the problem which faces us. We keep hearing—we heard it again from the hon. Member for St. Ives—that, if the Opposition were to win the next election—as does not seem likely now—we would see a new personal taxation system. We have heard this from the hon. Member for Wanstead and Woodford (Mr. Patrick Jenkin) and we have had these odd sentences now and again about this new system, about a complete change in the personal tax system.
But I have not yet heard what the new system is which they propose. We have had some details from the right hon. Member for Wolverhampton, South-West (Mr. Powell). He wants to knock 4s. off the standard rate of tax and, naturally, goes somewhat further—at least, this week—than the official Opposition, but that is not a complete recasting of our whole personal taxation system. But, from the Official Opposition, we have heard nothing. This is why the taxpayers generally, despite the fact that income tax is extremely unpopular with them, find the Opposition's case on taxation without credibility, because they constantly come up with a simple 9d. off the standard rate. Incidentally, this year, unlike last, when they proposed only 6d., they have managed to get the hon. Member for Worcestershire, South with them by upping it by 50 per cent.
There is a need for new methods of personal taxation. That is why I was rather sorry to hear what the Chief Secretary said on Second Reading. He appeared to close his mind completely to any question of a negative income tax. I do not pretend that it would necessarily provide all the answers to the problems of personal taxation, but my right hon. Friend said that he had reached conclusions, which suggests that he has closed his mind on the matter. Yet we have a negative income tax already. He said that the reasons that he opposed a negative income tax were: first, its complexity; second, that it would not respond quickly enough; third, the cost; and, fourth—which is rather interesting—the question of incentives. But we have a negative income tax now, through our social benefits, which is very complex. It is not satisfactory to suggest that because of its complexity we cannot have a negative tax system.
§ Mr. Barnett
Yes, there is at least a possibility, and I will come to that, but I am not prepared to say that negative income tax will automatically solve everything.
The Chief Secretary called in aid the White Paper on National Superannuation and Social Insurance, Cmnd. 3883, paragraph 108:The undesirable effects on the development of occupational schemes, and on savings generally, would occur whatever method of applying a means test was used.This argument goes to the root of the Opposition's belief that they could get more savings. An adequate " means-tested " welfare system would have an effect on savings. If there were no welfare system, and people had nothing to expect when they reached retirement, they would save personally. So a system of negative income tax would have a disincentive effect on savings. The system which we now have of negative income tax—that is, income tax and social benefits—also has a disincentive effect on savings, but to use that as an argument for saying that we cannot have a negative income tax system is totally false.
The other point made by my right hon. Friend was that of cost. Considerable inquiry would be needed to find out the cost in comparison with any conceivable alternative. The cost cannot be taken out of context but must be compared with our present cumbersome system. As is stated in paragraph 108, to which I have referred, the Government do not have details of rents, and this is an argument for not being able to deal with the current year. The P.A.Y.E. scheme is administered on the previous year's figures and not on the current figures. Supplementary benefits are dealt with on a current basis. I cannot see why a system amalgamating social benefits and income tax cannot be devised on a current basis as opposed to the previous year basis, particularly with the expected totally computerised P.A.Y.E. scheme in 1972. So that argument does not stand up.
The P.E.P. broadsheet by Brown and Dawson, of January, 1969, did not 1100 adequately deal with the disincentive effect on people at the lower end of the scale. There is no disincentive because they do not pay income tax, but if a 30 per cent. rate were applied on the negative income tax system there would be a disincentive. Nevertheless, both the Chief Secretary and the P.E.P. document showed conclusively that the disincentive effect at that level would not be very great. So the answer could be in a more streamlined system of negative income tax than the present cumbersome system of income tax and social security. I readily accept that there are many variations of a negative income tax system. Hon. Members opposite are under a delusion if they believe that a negative income tax system would greatly reduce the levels of direct taxation. If the direct taxation paid by people at the higher end of the scale is to be substantially reduced this can be done only by taking the money from somebody else or from somewhere else; it will not be done by a miracle.
I entirely agree with the right hon. Gentleman that the answer lies in family allowances and clawback. Until we have a negative income tax system this is the only way in which something can be done. But by this method one is helping only those families with more than one child who are not paying tax. Nothing is being done for the millions of families with fewer than two children who are not paying tax, and very little is being done for those at the very lowest end of the scale. If £200 million a year is given in reduced direct taxation to those at the higher end of the scale, this amount must inevitably come from those at the lower end of the scale.
§ 5.15 p.m.
§ Mr. Barnett
If the right hon. Gentleman argues that it will come from higher growth and greater productivity, this has to be proved. The right hon. Gentleman is proposing to give it away before he gets it.
§ Mr. Boyd-Carpenter
The hon. Gentleman has anticipated my objection. A proper stimulus to the economy such as was given by Sir Winston Churchill's Government led to a steady improvement in social benefits combined with a steady 1101 reduction in tax rates, which resulted from an ever-increasing national product, a smaller proportion of which taken in taxation produced a higher tax yield.
§ Mr. Barnett
The statistics of the last 20 years will not get us very far. I have been very critical of the levels of economic growth achieved, but I do not stop at 1964; I go back much further than that. The levels of economic growth over the last 20 years have been shockingly bad. I do not think that the right hon. Gentleman can prove that levels of direct taxation at a specific point in time caused a specific level of increased growth.
§ Mr. Julian Ridsdale (Harwich)
I have been following the hon. Gentleman's argument, but, surely, if we want increased growth we must have increased investment, which means increased savings. How can one get increased savings with increased taxation and a Budget surplus of £200 million?
§ Mr. Barnett
I should be delighted to follow that argument on another occasion. It is a complex argument, and 9d. off the standard rate does not solve it.
§ Mr. Barnett
The article which appeared inThe Timesyesterday seems to represent the Opposition's case on taxation. The article suggested that if, say, £1,000 million were given away in reduced taxation this would stimulate growth. This is a matter of living in hope. It is like the shopkeeper who was waiting to increase his sales when he went bankrupt. It would be a very interesting Chancellor of the Exchequer who gave away £1,000 million in reduced taxation because he expected that that amount would be saved.
There is need for a fundamental revision in our personal taxation system. On Second. Reading I argued that there should be an amalgamation of income tax and surtax. I can see no argument for retaining this crazy system, apart from that put forward by Inland Revenue officials who in evidence said that they were overworked but would not want any change even if it resulted in fewer people being employed in the surtax office. I agree that the highest levels of surtax should be knocked off, but at the same time I would combine that with a 1102 wealth tax and a gift tax—although perhaps I would not carry hon. Members opposite with me on that matter. In the short term I should like to see the earned income relief go, which these days is an anachronism since it confuses the taxpayer into thinking that he is paying more than he is. This can be a great disincentive.
Something should be done to recast the whole of the structure of personal allowances. This would involve some additional work for the clerical grades of the inland revenue, but I see no reason why a Government should not do something they think right simply because there are not sufficient Inland Revenue clerks to do the work. This would be a crazy argument for not carrying out a particular policy. In the long term there is an absolute need to look into the whole question of restructuring the tax system together with social benefits which are part of the same process.
The time may now be ripe for a Royal Commission to look into the matter of personal taxation, including social benefits. This is a vital matter, and since it would take some years for such a report to appear there would by that time be a more objective understanding of the matter, including perhaps the sort of research which is needed. In that way we would get a more objective view of the personal tax system than we are likely to get in the narrow debates which take place in this House.
The right hon. Member for Enfield, West has spoken on previous occasions of the need for simplicity in our tax system and has mentioned the American system of self-assessment. I would draw the right hon. Gentleman's attention to an item inThe Timeson 23rd April, 1970, which dealt rather well with any possibility of our wishing to do anything in this direction. The item said:A prime target is the new tax return form, which is so complex that a more than elementary knowledge of algebra is a great advantage to anyone filling it in. Professor Friedman has calculated that 75 million Americans have spent a total of 300 million man-hours struggling with the form—the equivalent of 150,000 men working 40 hours a week for 50 weeks a year. It has provided a great windfall for tax accountants busy advertising their services at prime time on the television networks and the Tax Reform Act of 1969 is now widely known as the Accountants' and Lawyers' Relief Act of 1969.1103 As a member of that profession, I declare an interest and make it clear that I do not want that sort of relief. I should be interested to know whether the right hon. Gentleman is in favour of moving to that sort of system.
§ Mr. R. H. Turton (Thirsk and Malton)
There was a disagreement between the hon. Member for Ashton-under-Lyne (Mr. Sheldon) and my hon. Friend the Member for Wycombe (Mr. John Hall) about the yield of a reduction in the rate of income tax. The present Chancellor of the Exchequer has made great progress in giving to the House information in White Papers on public expenditure. It would be a great help if at the same time he could give similar information to the House on the revenue side. It would help our calculations before reaching the Committee stage to know exactly what was involved in a reduction of 1s. in the standard rate. I hope that this matter will be considered.
It is obvious that the hon. Member for Ashton-under-Lyne was using last year's timetable—
§ Mr. Turton
That is what I was saying. The hon. Member is forgetting that it is just like an out-of-date railway timetable. I nearly missed my train this week because my timetable which was current last week is no longer current. I make my suggestion about that further information since I have been impressed by the work done in the present Government in giving information from the Treasury. I hope that more use can be made of that information by other means in the future.
The real problem is whether we can afford the £525 million which would be involved if the Amendment were accepted. The yield of income tax was £4,337 million in 1968–69 and £4,900 million in 1969–70, a rise of £563 million. That was at a time when the Chancellor could not give anything away and had to be very stringent. This year he expects to get £5,653 million from income tax, which is a further rise of £753 million—at a time when the Chief Secretary, on Second Reading, has said that this Budget was intended to give great relief 1104 to income tax payers. In fact the Chancellor is taking from income tax payers this year £753 million more than he took last year. He is taking some £2,600 million more than the last Conservative Chancellor took from the income tax payers in the last complete year of Conservative Government.
This has a disincentive effect on all workers at all rates of income tax. It is nonsense to say, as the hon. Member for Heywood and Royton (Mr. Barnett) said, that this concession would mean only 4s. a week. Direct taxation as high as it is at present does not encourage people to work harder or to produce more. This is one of the main reasons why the growth of the economy is so slow at present compared with other countries.
§ Mr. Ridsdale
Will my right hon. Friend agree that there is a great disincentive in that the individual is not able to save? This is why we are not getting the investment we should be getting in manufacturing industry to produce more.
§ Mr. Turton
That is part of the picture. They feel they do not want to work harder because the Government take much of it from them because of a high rate of taxation amounting to 41.25 per cent. They do not feel there is any incentive in saving. A further adverse effect is that people feel that the best thing to do is to gamble their money at bingo because at least the Government will not take their winnings in taxation. Such an attitude is morally bad for the nation. What worries me in the disincentive effect involved in the Chancellor not lowering the standard rate for people on low incomes.
In 1968–69, a single man earning £13 a week paid £82 7s. 8d. tax a year. Last year, he paid £82 8s. 11d. In other words, the Chancellor of the Exchequer took an extra 1s. 3d. from him. That was at a time of stringency when the right hon. Gentleman had to be hard. Now that he has given widespread reliefs, the single man earning £13 a week will pay £82 16s. 5d. in the year. The right hon. Gentleman will take another 7s. 6d. from him. In those three years, a person in that position has been given no relief. although his £13 a week buys about 15 per cent. less than it did three years ago. 1105 Yet he is paying more tax and, if his wage is increased by £1 a week, he will pay an extra £13 tax in the year under the present Budget. That is why this Budget is very hard and will become very unpopular later in the year. My advice to the Prime Minister is that it would be wise to get out quickly and go to the country. Later on, people will discover the weakness of this Budget.
It will bear very hard on industries such as agriculture. Broadly speaking, the married farm worker does not normally pay tax under P.A.Y.E., except at harvest time. Under the present Budget, he will have to pay 6s. 5d. in the £ on all overtime earnings. This is the great weakness of this Budget.
If the standard rate is reduced from 8s. 3d. to 7s. 6d., I agree that it will not make all that difference. But it will make some difference. A high rate of tax coupled with the abolition of the bands acts as a disincentive to growth in the economy, and it will be extremely unfortunate in its effect in trying to achieve greater productivity.
My hon. Friend the Member for St. Ives (Mr. Nott) talked about marginal relief. I do not think that the Chancellor of the Exchequer realises how this works under the present Budget system on old people with small incomes. He has given some relief but altered the band slightly. Only this week, I have heard from a constituent of mine. He is an ex-Army man with an income of £15 10s. 9d. a week. He is over 65 and married. Last year he paid 9s. in the £ on all his income over the marginal limit. Under the right hon. Gentleman's present proposals, my constituent will pay 10s. in the £ on all his earnings over the marginal limit. That cannot be fair. He is treated as if he were a surtax payer because he has earnings over the limit of something like £64. That is why a high rate of tax at 8s. 3d. in the £ makes for great hardship on people in that bracket. Of course, if he had not got that £64, the right hon. Gentleman's proposals would relieve him. But he has £64 more, which is about £1 5s. a week, and, for that reason, the Chancellor of the Exchequer takes half of the excess in income tax.
§ The Chancellor of the Exchequer (Mr. Roy Jenkins)
While I agree that there 1106 is this difficulty about the marginal relief provisions, the right hon. Gentleman's constituent's total tax bill will be less than it would have been had it not been for my Budget changes, especially those relating to age exemption.
§ Mr. Turton
I agree, but the right hon. Gentleman has to remember that the amount of money which old people have buys that much less than it did last year.
In working out his Budget evaluation of the problems of old people, the right hon. Gentleman has to think not only of the concession itself but of the concession in the arena of high inflation, which is hitting old people. I have always felt that no civilised Government should tax people who are over 65, especially the husband and wife who have between them less than £20 a week. They should all be taken out of tax. They are having a hard struggle, and it is quite wrong to tax them.
If we are to get the growth of the economy that all sides of the House want to see, we have to tackle the problem of direct taxation. We have also to tackle the question of the share of the gross national product which is taken at present by the public sector. It has grown this year to 51.25 per cent. Until we can get that down to 35 per cent. of the gross national product, this country will not get the growth that we require. One way of doing that would be to adopt this Amendment.
I hope that the Government will think again about the problem of high taxation and about whether it is right this year, when there should be concessions, to take £753 million more from income tax payers than was taken last year.
§ Mr. David Waddington (Nelson and Colne)
Like my right hon. Friend the Member for Thirsk and Malton (Mr. Turton), I should like to refer to a case to illustrate the fact that people on quite lowly incomes are caught well within the tax net and are paying tax on a level which would shock ordinary members of the public if they fully appreciated the position.
Before dealing with that case, perhaps I might comment on the speech of the hon. Member for Heywood and Royton 1107 (Mr. Barnett). I was not altogether surprised to find that I agreed with some of his remarks. I was glad to hear him urging an amalgamation of income tax and surtax. I was even more glad to hear him say that a good case could be made for reducing the highest rates of surtax.
I part company from the hon. Gentleman when he talks about a wealth tax. I can see the logic of the argument that the yield of a wealth tax could be used to reduce the highest rates of surtax, but I do not believe that a Labour Government could be trusted to use the yield from a wealth tax to reduce surtax. There may be others who are more credulous than I, but I would not trust a Labour Government to use it for that purpose.
I do not wish to destroy the amicable atmosphere of this Committee, but I sometimes despair of hon. Gentlemen opposite. Hardly a person in the country does not feel that the rates of direct taxation are far too high. One has only to walk round the streets of any town to meet people who feel in their bones that they are paying too much in direct taxation. I suppose that it is conceivable that they are wrong, although I do not accept it. But that is not the point. The point is that people feel that they are paying too much in direct taxation and that, if they put more effort into their jobs and work overtime, they will not get a fair reward since far too much will be taken from them by the tax man. I am sure that the right hon. Gentleman will accept that that is an unhealthy state of affairs.
I object strongly to the defeatist approach which we hear so often from hon. Gentlemen opposite. The theme is, " You may be right. We may be overtaxed. But there is nothing we can do about it. We are stuck with present levels of Government expenditure. You Tories make rash and irresponsible pledges to the country, but nothing can be done." I do not accept that.
The other day, I had an argument with the Minister of State, Department of Health and Social Security. When I commented on the fact that we on this side were pledged to remove S.E.T., he asked where we would raise the £600 million. I do not accept that there is no room in our system for reductions in 1108 expenditure. We will get nowhere if hon. Members opposite merely say, " Nothing can be done. We are stuck for ever with our present rates of taxation, and people must accept them as a permanent feature of our life."
I have another criticism to make of the Government rather than of hon. Gentlemen. I object strongly when I open my income tax return and out falls a leaflet which seeks to persuade me that I am not paying as much tax as I am. It is not the function of the Inland Revenue to whitewash the Government. In any event, the argument on the back of the form which has been sent with income tax returns is entirely spurious. The first sentence on the back of the form reads:We know how much tax is stopped from our pay. Few of us know our average rate for the year. But this is the sensible way of looking at tax ".I do not agree with that. In terms of incentives, we are entitled to look at the marginal rate and at what we will have to pay by way of taxation if we earn another £5 by way of overtime. It is a completely spurious argument which is set out on the back of that form which accepts that the only thing which matters is the average rate of tax.
§ Mr. Ronald Bell (Buckinghamshire, South)
No doubt if it had borne on it the imprint of the Labour Party office, my hon. Friend would not have objected so much.
§ Mr. Waddington
I would not. I think it is going a bit far to distribute leaflets of that kind at the expense of the taxpayer. It never happened under a Conservative Government.
§ Mr. Ridsdale
Does my hon. Friend agree that it would have been better if the indirect tax that a man paid was also included, because that would almost have doubled the figure?
§ Mr. Waddington
Yes. There was no attempt to give a complete picture. They are highly selective figures which do not illustrate what we all know to be the case—that so steeply graduated is our direct taxation system that the ordinary man knows that he will get precious little reward for extra effort.
People know that where there is a will there is a way. They know that 1109 when the Conservatives were in power there were massive reductions in direct taxation and at the same time considerable increases in welfare payments and other social benefits. We are entitled to say to the people, " We did it before and we can do it again ". We are entitled to ask people to look at our record and to say, " We can be trusted, unlike those who have been engaged in Government in the last few years ".
I said that I wanted to mention a particular case, because few people realise how very nearly all-embracing the tax net is and how many people of lowly means are being soaked by the tax man.
The case that I have in mind concerns an elderly lady, crippled with arthritis, who, being unable to look after herself, lives in a nursing home in Grange-over-Sands. Her income is derived from a war widow's pension of £359 and a retirement pension of £245, a total of £604 a year or £11 12s. a week. She now pays £11 1ls. a week to the nursing home, leaving her with virtually nothing for herself. Yet she has received a tax demand for £64 6s. for the income tax year 1969–70. There is something seriously wrong with a taxation system which allows that to happen to a person who has made few demands on the State during her life and has done her best not to be a burden to the State in the evening of her life. It is small wonder that in her letter she said:If this lot get back again, the voters deserve all they get.
§ Mr. Roy Jenkins
I intervene briefly at this stage not necessarily with a desire to bring the debate to an end. We have had a fairly good and wide-ranging debate. This opening debate on the standard rate of income tax naturally tends to be wide-ranging and fairly lengthy. I have no doubt that the right hon. Member for Enfield, West (Mr. fain Macleod) will wish to speak after me, and it may be that other hon. Members also wish to speak. However, it may be convenient if I speak at this stage.
I will begin with the question which is fairly well understood on both sides, namely, the cost of the Amendment. Both the hon. Member for Wycombe (Mr. John Hall) and my hon. Friend the Member for Ashton-under-Lyne (Mr. Sheldon) were right on certain assump- 1110 tions. In reply to the right hon. Member for Thirsk and Malton (Mr. Tartan), I must say that it is possible that the hon. Member for Wycombe was proceeding on a more up-to-date timetable than my hon. Friend. The cost in a full year would be £525 million if the Amendment, as I take it is the intention, is superimposed on the Budget changes. If it is assumed that the Budget changes do not exist and we go back, the cost would be approximately what my hon. Friend suggested. But I understand that is not the intention. In so far as there has been confusion about that, that is the difficulty.
I should add, without wishing to debate the matter—it would be out of order and inappropriate—that this cost should be seen in relation to another Official Opposition Amendment which proposes surtax reductions amounting to £115 million in a full year on top of the £525 million proposed in the Amendment.
The right hon. Member for Kingston-upon-Thames (Mr. Boyd-Carpenter) quite rightly said that his Amendment was more modest and would cost, on either assumption, only a third of that put forward in the Official Opposition Amendment. It is indeed somewhat more modest, and the Amendment in the name of the right hon. Member for Devon, North (Mr. Thorpe) and his hon. Friends is even more modest. Its modesty becomes positively frightening.
§ Mr. Richard Wainwright (Colne Valley)
I rise simply to point out that our Amendment is selected for debate alongside the others, but no one has yet had an opportunity to explain it.
§ Mr. Jenkins
I noted that. I also noted that, before the last speech from the Opposition, no Liberal Member rose to his feet That may partly account for the fact that you, Mr. Deputy Speaker, did not call a Liberal Member. Had an hon. Member from the Liberal benches risen to his feet, I might have felt it necessary to wait a little longer before intervening in order to hear a speech in support of the Amendment. In the circumstances, I thought it reasonable to rise when I did.
The right hon. Member for Kingston-upon-Thames said that reducing the matter to his modest proposals it became a question of £200 million or so, which 1111 was neither here nor there in the circumstances of this year. He said that this was well within the margin of any Budget judgment. This being so, I am grateful that my right hon. Friend the Chief Secretary has been Chief Secretary under me, not the right hon. Member for Kingston-upon-Thames, because a Chief Secretary to the Treasury who took the view that £200 million was neither here nor there in any circumstances would not be a very satisfactory Chief Secretary.
§ Mr. Boyd-Carpenter
The Chancellor puts it very entertainingly. Whereas on the Chief Secretary's side £200 million is there and can be laid hands on, spent or not spent, the whole point of my observation was that in a Budget judgment in the circumstances of this year neither the Chancellor nor anybody else knows whether it is there or not.
§ Mr. Jenkins
I dispute that point. There are uncertainties in every year and there are particular uncertainties in particular years. This year is not unique in having uncertainties. We have had a moving wage situation in the past—
§ Mr. Jenkins
While I agree that the rate of wage movement is considerable and successive, it is easy to see differences out of proportion and believe that it is qualitatively different from what we experienced in the past. We experienced a movement of earnings of 8 per cent. last year, and very much the same in the preceding year. This did not mean that it was not possible to budget with accuracy—and we came very close to the forecast—and retain tight control over consumption. I do not take the view that circumstances are qualitatively different. Nor do I take the view that circumstances are such that one can afford to treat a sum of £200 million as of no importance.
Whatever sums we are considering, there is a big difference between the proposal of the right hon. Member for Kingston-upon-Thames and that of the Official Opposition. Perhaps I might for a moment deal briefly with the right hon. Gentleman before turning to the Official Opposition. Clearly the proposition to reduce the standard rate by 3d. was a conceivable option which, within the 1112 terms of my Budget judgment, I could, and did, consider. It would have been theoretically possible to have combined this with some sort of more limited threshold scheme such as I did to take some people out of tax.
In his speech on the Budget the right hon. Member for Enfield, West rather indicated that that is what he thought 1 ought to have done within the terms of my Budget judgment. One reason, perhaps the most powerful reason, though there may have been others, why I rejected this was that to have done it within the terms of my Budget judgment and the cost which I thought feasible would have produced an odd and indefensible switchback effect. It would have had the effect of giving benefit to people on a low rate of income, then the benefit dying away, and then coming back again. This would have been the inevitable effect, within the amount of money one could afford, of having combined a threshold scheme with 3d. off the standard rate. It would have been difficult to defend, and it would not have produced any more benefit for the average wage earner about whom we have heard a certain amount from the hon. Member for St. Ives (Mr. Nott). On the contrary, it would have produced less for the average wage earner, and even the scheme of the Opposition—the far more generous, far less modest scheme of 9d. off the standard rate, which is far beyond what we could prudently afford—would have given very little more to the average married wage earner with two children than my scheme would, and at a far greater cost. It would have given very little more because it would have given very much up the scale.
Could we have afforded this? One basis put forward by the Opposition why we could is the question of savings. They say that we would get more savings. We had several interventions from the hon. Member for Harwich (Mr. Ridsdale), who I thought rather misunderstood the relationship between savings and investment, but I shall not go into that as it is not directly relevant to the issue before us. The hon. Gentleman said that we could depend upon savings. I attach value to savings, and I recognise that in recent circumstances it has been difficult to get a fully adequate level of savings. I think that this will remain a continuing 1113 problem, but one which we should endeavour to solve. However, to, assume that if we make a tax reduction, which we want to make for other reasons, we can pretend that we shall get a totally unrealistic proportion of that saved, and to count those savings in advance on the credit side of the balance sheet, is a recipe for improvident finance which would undoubtedly create the most difficult and dangerous circumstances. The true relationship is to encourage savings and to count our chickens when they are hatched, and not well before they are hatched.
The other matter is the reduction in public expenditure. On this the hon. Member for St. Ives spoke at some length, but with some interest. I was not sure how far the right hon. Member for Enfield, West, was enthusiastically cheering his hon. Friend at that point. He cheered him at the end, but I was not quite sure about how far the hon. Gentleman was carrying his right hon. Friend with him during that part of his speech.
What the hon. Gentleman said, in effect, was that what was essential was to get a lower proportion of the national income devoted to public expenditure. I challenge this assumption. I think I can claim that during two and a half years at the Treasury, with the assistance of my right hon. Friend the Chief Secretary, who has done more of it than I have, there has been a tighter control over public expenditure than for a long time past; certainly a far tighter control than there was when the right hon. Member for Kingston-upon-Thames was Chief Secretary, and the right hon. Member for Barnet (Mr. Maudling) was Chancellor. There is no question about that.
§ Mr. Jenkins
The rate of growth was very rapid indeed, as were the increases which took place subsequently, but the rate of growth in national income was concentrated into the period when the balance of payments was going overwhelmingly wrong. It was a 1963–64 phenomenon, and if one takes the other period one finds that that was not so, but that, too, is somewhat wide of the debate.
§ Mr. Michael Alison (Barkston Ash)
That was at a time when the right hon. 1114 Gentleman was urging that the economy should grow, and that we should go for a 6 per cent. to 9 per cent. growth rate.
§ Mr. Jenkins
I do not think that that deals with the point at issue, which is that there was a high rate of growth in public expenditure. I should have looked up the context in which that quotation was used. I do not believe that it bears exactly the interpretation which was put upon it.
§ Mr. Boyd-Carpenter
However good humouredly the right hon. Gentleman made his observations, I am sure he will accept that when my right hon. Friend the Member for Barnet (Mr. Maudling) was Chancellor, and I was Chief Secretary, national expenditure as a percentage of the gross national product was conspicuously below what it is today, and that most hon. Gentlemen opposite, including himself, were always urging an increase.
§ Mr. Jenkins
We were not urging an increase any more strenuously than the Opposition have been urging increases recently. While it may, as a percentage of the national income, have been low, it was rising rapidly, and if what was projected at that stage had continued undoubtedly it would have risen at least as rapidly as it has done recently.
It is not the case, as I think the hon. Member for St. Ives admitted freely and frankly, that our total level of public expenditure as a percentage of national income is out of line with the general run of comparable countries. It is higher than a few, and it is lower than quite a few. It is at about the middle among the advanced industrial countries. In all such countries, under a wide variety of Governments, there is a strong continuing tendency for public expenditure to rise, both absolutely, and as a proportion of the national income. This happens at differing paces, under different Governments, because it is virtually impossible in a modern industrial society to cope with community problems which are thrust up by the modern wealth-producing process itself without the community undertaking greater and greater responsibilities for curing them, whether they are social, environmental, or other problems.
If the right hon. Gentleman sets his face firmly in this direction, he is doing 1115 so against the recent experience of every civilised country in the world which is endeavouring to make sense and to make living conditions tolerable in the midst of different and complex modern problems. I do not believe for a moment that the right hon. Gentleman would succeed in doing this. Of all the Opposition's claims the most unconvincing is their attempt to reconcile a general desire to reduce public expenditure with a long and increasing catalogue of items for increases in public expenditure.
They have failed to convince many of their old allies. There have been few more devastating articles than that by Andrew Alexander in theDaily Telegraphlast September, in which he suggested that the increase in expenditure would be £1,000 million under the programmes of the right hon. Gentleman, to which there might be offset savings of £500 million, leaving a net increase of £500 million. I believe that hon. Gentlemen opposite are failing signally to convince the country on this issue.
My only disappointment at the recent move of public opinion is that we may no longer have the opportunity, to use a famous phrase, to go forward together and put these brave matters to the proof and see what the right hon. Gentleman would really do. My belief is that he would not reduce public expenditure and that he would find it very difficult to fulfil his taxation pledges. He would not fulfil them fully. He would go some way—just about far enough to unbalance the economy and put us back into real trouble again without doing what he said he would do. In other words, we would, very effectively, have the worst of both worlds.
We have heard less in this debate than in the similar one last year about international comparisons, and perhaps for very good reasons. Last year, we had a rather selective speech by the right hon. Member for Bexley (Mr. Heath) who took some figures and announced them as though they were the ultimate word which could be spoken on this subject. My own belief, as I said last year, is that, in this field, one can prove almost anything by international comparisons and that one can produce international comparisons to prove almost any thesis.
1116 I took last year, and I take again, comparisons for United Kingdom rates of marginal tax—the hon. Member for St. Ives said that marginal taxation was the crucial thing—at what might be regarded as the middle management levels of £5,000 a year, where the United Kingdom compares very favourably with four or five other major countries and again is in the middle of the table. The position is not dissimilar at £7,000 a year. It is worse when one reaches the high rates of tax and in some ways it is not very good at the lower end of the scale—though the last thing which follows from that is that the main taxation concession to which we should devote £525 million is a cut in the standard rate by 9d., particularly when accompanied by a cut in surtax of £115 million as well. That is not a convenient way—
§ Mr. Jenkins
At £5,001, it would be substantially improved, owing to my surtax threshold provision—
§ Mr. Jenkins
Yes, of course it does. It affects the rate at which surtaxable income begins, whether for earned income or for unearned income, so the hon. Gentleman is quite wrong. At £5,001 a year, the position would be affected precisely by the surtax threshold scheme, which leads me effectively to my last point.
The right hon. Member for Kingston-upon-Thames, who made an interesting speech—I apologise for referring to it constantly—quoted me fairly as saying last year that, in a difficult year, I gave high priority to trying to increase one of the earned income allowances. He wondered why I had not done it this year. This is a fair and essential question, which I should try to answer. But if it is thought that this was the right way to proceed—the right hon. Gentleman's speech implied that it was—I am not sure why the Opposition have not put down Amendments to do this, rather than the series which we are discussing, which would do something quite different.
Anyway, I said that I gave priority to that. This year, I had a little, only a 1117 very little, more room for manoeuvre. I decided that it was necessary to give the bulk of the concessions at the lower end of the scale, and, of course, dealing with earned income allowances would have dealt exclusively with incomes above £4,005 a year if one dealt with the lower one and the cost would have been substantially higher if one dealt with the higher one. So I though it right to give the bulk of concessions there.
But I thought it also right to do something towards the upper end of the scale too. I believe that, bearing in mind the immense complication, the cost of collection, the number of people coming into what was intended to be a minority tax, it was better—although it was a difficult choice—to give priority to the surtax threshold, rather than to the earned income relief. But I would not withdraw from what I said previously—that I do not believe in the character-building benefits of high direct taxation paying. This is not beneficial in itself. I in no way retract from what I said in 1969. I certainly stand by that.
But there is one consideration— I believe that the country generally appreciates this—which is of far greater importance even than giving direct taxation concessions, even if it would increase incentives. That is, not to act in a way which would unbalance the economy and put us back into national difficulties, not, in other words, to give away more in the Budget—I accept here the phrase of the right hon. Member for Kingston-upon-Thames: " give away " is a bad phrase and perhaps a better one would be " release "—than is justified on what is the best Budget judgment that I can make. I believe that the country prefers that to an extravagant Budget, and it would certainly be an extravagant Budget if we were to accept this Amendment. So, when they come to vote, I would ask the Committee to reject it.
§ Mr. Iain Macleod
I follow the Chancellor, in the spirit in which he spoke, in no way to close the debate. I hope that we shall hear from a number of my right hon. and hon. Friends and also from the Liberal spokesman.
I regard this as the most important Amendment, and probably the most important debate, in the whole Committee stage of the Finance Bill.
1118 Let me start with the question of the cost. It was not without significance that this debate began with an argument about cost in which the hon. Member for Ashton-under-Lyne (Mr. Sheldon) proved to be wholly wrong and my hon. Friend the Member for Wycombe (Mr. John Hall) proved to be wholly right. With respect to the hon. Member for Ashton-under-Lyne, having been wrong on this matter—although I understand why he was wrong: he just ignored the Budget —and then having launched into a detailed attack on hon. Members on this side, when the matter was pointed out to him he might, because he is normally fair in these matters, at least have withdrawn the attack which he based on an entirely incorrect premise—
§ Mr. Sheldonrose—
§ Mr. Sheldon
I am very happy to withdraw. I put my judgment on the same basis as the right hon. Member for Kingston-upon-Thames (Mr. Boyd Carpenter) and the Chancellor. It is a pity, though, that in this connection the Leader of the Opposition, who made a most egregious error, which has been pointed out to him again and again, has not seen fit to withdraw his error.
§ Mr. Macleod
I am content, for the moment, with the hon. Gentleman's withdrawal. He was on a wrong basis.
But what is much more important than a difference about cost, which is now resolved, is that there is a clear difference of philosophy between the two sides of the House, which has been coming out in a number of speeches, and which I want to emphasise.
The Chancellor referred to the cost of later Amendments. With respect, one should not do that in considering a Finance Bill. Every Finance Bill since I have been a Member of the House has, if one takes the total of the Opposition Amendments—whether the Opposition be Labour or Conservative—been vastly in excess of anything which the Chancellor of the day could conceivably meet. But we take those Amendments one by one. I am happy to make an offer to the Chancellor. If he will accept this one, I will drop all the others, and, indeed, 1119 I will move no further Amendments throughout the proceedings on the Finance Bill I cannot say fairer than that.
What is important—the Chancellor, not surprisingly, showed himself a little sensitive about it right at the end of his speech—is that, because he has not moved this year in direct taxation, he is in breach of everything which he has said on direct taxation for some years past. Let me quote some things which he said, as Home Secretary, in 1967 in London:we cannot be indifferent to the disincentive effect which very high taxation on earned incomes might have. The Labour Party, as the 1966 Election showed conclusively, is a Party with an appeal to all income and occupational groups. Furthermore, we desperately need a competitive and thrusting business climate.That is what he said in 1967.
In 1968, even in that year in which he took more taxation than any Chancellor has done in war or peace, the right hon. Gentleman made a virtue out of not increasing direct taxation, and said:This I believe to be justified on the grounds of incentive."—[OFFICAL. REPORT, 19th March, 1968; Vol. 761, c. 296.]I quote again the words the right hon. Gentleman used last year:I would emphasise, however, that I regard an increase in one of the earned income allowances as a high priority for a later Budget."—[OFFICIAL REPORT, 15th April, 1969; Vol. 781, c. 1031–32.]So we have had the Chancellor's undertakings in 1967, 1968 and 1969; and they have been broken. The Chancellor made no bones about it. He tried to explain it, but he did not deny that those undertakings have been broken in 1970.
I have not the slightest doubt why the Chancellor decided to go back on the undertakings, or, if that is too strong a word, as it probably is, on the indications which he has given over the years in and out of Parliament. He did it purely on grounds of relative popularity. He did it because, in crude terms, the teenagers, who get one of the biggest benefits from his Budget, have votes and the children in poverty have no votes. That is the philosophy that underlay this Budget. That is one of the reasons why I said in my Budget speech that, given the Budget judgment—
§ Mr. Roy Jenkins
What have children in poverty got to do with the question whether or not I increased one of the earned income allowances, which is what I thought the right hon. Gentleman was applying himself to?
§ Mr. Macleod
They have everything to do with it, because in this Budget the Chancellor was, in my submission—he can deny this if he likes—moved entirely by electoral, political and popularity considerations. He left out of consideration children in poverty, because they have no votes.
§ Mr. Roy Jenkins
The right hon. Gentleman cannot get away with that. He was applying himself directly to an argument following up what the right hon. Member for Kingston-upon-Thames (Mr. Boyd-Carpenter) said, that I had indicated in 1969 that I gave a fairly high priority to reducing the rates of tax on high earned income. There may be a case for that. There may be a case for doing something to help children in poverty. But to confuse the two issues, as the right hon. Gentleman is deliberately doing, is to misrepresent the whole position. and the right hon. Gentleman knows this.
§ Mr. Macleod
I am sorry that the right hon. Gentleman is so sensitive about what he has done. I should have thought that he would have stood by it.
I made quite clear in my Budget speech—I repeat it—that, given the Budget judgment—which I do not accept —I should have taken 3d. off income tax, which the Chancellor said at the time would cost £110 million, done something about allowances, and dealt for the rest with child poverty. That is not a popular thing to put forward, and I know it. I know very well from the postbag I have had since that that is an unpopular suggestion to make. But I believe it to have been the right one to make. I believe that the Budget would have been a much better one if the right hon. Gentleman had taken those considerations into account.
Whether or not the right hon. Gentleman has been consistent over the years, the one thing that is surely beyond dispute is this. In office and out of office, we on this side have been consistent either in urging when we were in opposition or 1121 in achieving when we were in government reductions in direct taxation. I am not for the moment arguing whether we were right or wrong to do this. I am talking about the philosophy that divides the two sides. I say that it cannot be denied that for very many years we have, in office and out of office, pursued the theme that is implicit in the proposal now before the Committee.
As one of my hon. Friends has said, when people, talking about our plans for a reduction in direct taxation, say, " You cannot at one and the same time reduce taxation and improve the social services ", we are entitled to give the simple answer—" We did it ". We did it over those 13 years.
§ Mr. BRYANT GODMAN IRVINEin the Chair]
§ 6.15 p.m.
§ This is not a matter for argument or for talking across the Despatch Boxes. We can have our differences there. But it is in the record books that we reduced rates by £2,000 million. It is in the record books that in nine out of our 13 Budgets we reduced direct taxation. It is in the record books that we reduced the standard rate, with which we are particularly concerned at the moment, by 1s. 9d. and that we never increased it. It is in the record books as well that over that period the social services in real terms, taking all price considerations into account, were increased in value by 40 per cent.
§ It is not possible in opposition to reveal details of rates and budgetary matters that one has in mind. Therefore, I understand and do not resent the criticism which has been made in newspaper articles. Although, for obvious reasons, one cannot prove the future, one can call the past in aid. The past shows conclusively that what we have done we can do and we will do again.
§ Then we had a very interesting speech by the hon. Member for Heywood and Royton (Mr. Barnett). I congratulate the hon. Gentleman on making an excellent speech on Second Reading and then persuading theSunday Telegraphto pay him a fee for the same speech in the guise of a newspaper article last Sunday. I wish the newspapers were as generous with me.1122
§ There was much in the hon. Gentleman's speech with which I agreed. I will come to one or two specific points later. The hon. Gentleman argued—my hon. Friends the Members for St. Ives (Mr. Nott) and Nelson and Colne (Mr. Waddington) argued in the contrary sense—that, because it can be shown that somebody on average wages or thereabouts gets only a few shillings from the reduction in the standard rate, this is not perhaps of the first importance and that the question to ask is: who is it who feels that direct taxation in Britain is too high and that he would benefit greatly, in energy or in any other way, from a reduction?
§ The answer is one which the hon. Gentleman sometimes laughs at, but I do not. It is the people who feel this—the people in his constituency and those in mine. People such as the hon. Member for Ashton-under-Lyne ask for inquiries, commissions, and so on. There may well be a case for these. I would like to have more detailed information. We in opposition have spent a good deal of money on conducting just such inquiries.
§ Over the years it has been fascinating to watch how direct taxation, which for a long time ranked about ninth, tenth or eleventh if people were asked what they were worried about most, for some time now has been running second only to prices. This is what the people feel. I have no doubt that this is why they want a reduction in direct taxation, because the theme of choice is not one that I scorn as the hon. Gentleman does.
§ The first choice that people should have is that of spending more of their own money. With that, choice will be returned from Ministers and Ministries back to the people. That is the philosophy lying behind this suggestion.
§ Mr. Barnett
The right hon. Gentleman is confusing what people feel and what they will actually get from, for example, this Amendment or anything along these lines. Of course I accept that people feel they would like to have cuts in taxation, but this Amendment, or any analysis of it, shows that that is not what they would get. It shows that the right hon. Gentleman's tax policy lacks credibility.
§ Mr. Macleod
I take up the hon. Member's argument, but not his postscript, 1123 which I leave for another time. In a phrase used by my hon. Friend the Member for St. Ives in his admirable speech, I believe that people know and politicians such as the hon. Gentleman do not know. There are all sorts of considerations, considerations of psychology among others, which the hon. Gentleman entirely leaves out of account in doing a simple slide-rule calculation about what people on £2,000 a year, or £25 a week, or whatever it may be. would have.
I turn to the question touched on by the Chancellor in relation to savings. I have made clear many times that I have never thought that the Chancellor really understood the importance of savings. We have an Amendment on the Notice Paper which we may come to tomorrow. It may be more appropriate to discuss those matters then. The Chancellor has perhaps read, and, if not, I recommend him to read, an article on savings which appeared recently in theWestminster Bank Reviewby Brian Reading and, I think, David Lomax. It convincingly put forward the argument that the proportion saved from tax reductions is vastly higher than orthodox theory has so far concluded. I think it is unproven and dangerous to count those chickens before they are hatched, but I think the Chancellor under-estimates, and has always under-estimated, the importance of savings in reduction of taxation.
We all know that there is what we call a vicious circle of high levels of public expenditure, particularly if they are combined with low levels of growth, leading to high and higher levels of taxation, and so the vicious circle goes on. I suggest that there may be a virtuous circle of the exact opposite in which lower levels of taxation will lead to more and more money being saved, therefore less pressure on demand, and therefore the possibilities in this circular exercise of still further reductions in taxation. The Chancellor ought to look at the possibilities in that. I know that intellectually he understands that this is possible. His speeches, which I have quoted, must mean that he is not too far apart on direct taxation from the sort of philosophy I am putting before the Committee. But what he must do is make a start in this field. The sort 1124 of start is indicatted to him on the Notice Paper now.
The last point I take comes back to something said by the hon. Member for Heywood and Royton. Apart from reductions in direct taxation into which it would obviously be out of order to stray too far, simplification is almost as important. I absolutely agree that there is no need to have surtax as a separate tax. Of course it can be combined with income tax; the two can merge.
On the question of self-assessment the hon. Member quoted amusingly from someone who said, in effect, that America with its tax system was " hell for chartered accountants ". What does he think it is in this country with the system we have at present? It is worth remembering that the staff of the Inland Revenue and its comparable opposite number in America are of roughly the same size and in America they collect, I think, 12 times as much tax from four times as many people. On self-assessment the opportunities are exciting and encouraging. I have not made a commitment beyond that, but we have studied it and I believe that it will repay the Government to study it very closely indeed.
We are now agreed on the cost of this proposal. The Government feel that it is both too much and wrong. We feel that if the Chancellor was determined to reduce direct taxation it could and should be met. I think we have shown fairly clearly in this debate that what we are putting forward is absolutely consistent with everything we have said not only in our six years of opposition but in the 13 years of government as well. What we have preached and what we have practised have gone hand in hand. We shall when we have the opportunity as a Government—I use the words I have used many times—drastically reduce both income tax and surtax. This Amendment is the right sort of start, and I commend it to the Committee.
§ Mr. Richard Wainwright
Speaking for the Liberal Amendment, I offer no support whatever to the proposals for sweeping reductions in income tax. My Liberal hon. Friends and I will certainly not support in the Lobby the Conservative Amendment.
1125 While on the subject of the Conservatives, I remind the Committee of the startling contrast between the coyness of the Conservative Front Bench about their alternative taxing proposals and the generosity of several back-benchers, notably the hon. Member for Heywood and Royton (Mr. Barnett), in coming clean with the Committee about their suggestions. I hope that in a future contribution the hon. Member for Heywood and Royton will go even further with his elucidation of a negative income tax. Dealing with the frequently held objection to a negative income tax that the system would not respond quickly enough to sudden need, he made the point that the Supplementary Benefits Commission responds quickly. He went on to say that he could not understand why the P.A.Y.E. system could not be adapted to respond with equal speed.
I hope the hon. Member will explain why a system called income tax, which is meant to deal with income on an annual basis, could respond with speed to a sudden need. I have always thought that it was one of the most humane aspects of our present supplementary benefits system that where people in the course of the year undergo sharp changes of fortune from high wages to virtual destitution—or the other way round, when a period of destitution is followed after a few months by high earnings—the Supplementary Benefits Commission normally does not, subject to certain exceptions, claw back what it has given during the period of misfortune. To transfer our present system of benefits to the framework of the income tax would be to introduce a most complex, inhumane and slow-moving system whereby people who had benefits because of hardship during the early part of the year would be assessed to repay those benefits in respect of quite high earnings later in the year. That seems an insuperable objection to a negative income tax system such as the hon. Member outlined.
I come to the Liberal Amendment which, as I say, is not intended to advocate in the context of May, 1970, sweeping reductions in taxation. It is true, as the Chancellor pointed out, that we have gone to extremes to dissociate ourselves from any idea of a tax bonanza in the context of May, 1970. This is for two main reasons. It is partly 1126 because we do not believe that anybody outside the small circle of ladies who want to bring back the birch and the stocks believes in the possibility of sweeping reductions in direct taxation during the present year. To the mass of the people, as recent opinion polls have tended to show, the promise of sweeping reductions in direct taxation does not carry serious weight when they are deciding how they might vote at an election.
More important, with a great movement towards increased earning irrevocably under way, this is plainly not the moment to offer a large income tax bonus as well. If we had had the foresight to equip ourselves with a flexible system of imposing direct taxation, if the Inland Revenue had been computerised during the years of Tory administration and we could have had an up-to-date system of administering direct taxation, there would have been a powerful case for anticipating the present rapid advance in earnings by interpolating from the Government side before the present pay negotiations began a reduction in income tax with the possibility—I say no more—of fore- stalling some of the tremendous pressure now behind the movement for higher earnings. But now that the higher earnings campaign is so thoroughly under way and for the moment unstoppable, until whichever party returns to power almost immediately imposes a very severe squeeze, it seems to me ridiculous and bordering upon dishonesty to advocate very sharp reductions in income tax rates.
Our modest Amendment therefore is intended to run up a flag for three causes. The first is the cause of real flexibility in our direct tax system. We suspect—though I hope that this can be denied with some evidence—that the clerical side of the Inland Revenue is so gummed up that anything less than 6d. off the standard rate is regarded in official quarters as not worth the administrative upheaval that it would cause. If that is so, it is unpardonable. There is in the public mind a confusion between the different levels in the Inland Revenue at which there can be administrative stress and blockage. Liberal Members accept with great regret that in the higher echelons of the Revenue, which are still wrestling with the effects of the 1965 Finance Act and the complications from subsequent 1127 Finance Acts, there is an extremely difficult situation which cannot be removed quickly owing to the length of the training period required. But this is an entirely different aspect from clerical difficulties, which, if they exist, should be put right with speed.
I accept that the Government were under a handicap in that computerisation was not started under the previous Government, but the sheer clerical operation of administering any change, however small, in the standard rate should be surmounted by a country with a proud tradition of Government service. We shall be very distressed if our suspicions are correct that modest reductions in the standard rate are no longer considered administratively worth the candle.
Second, although we accept the Chancellor's sincerity in saying that he would like to mitigate slightly the effect of direct taxation on incomes, we should like to see a token of his recognition that in a period of rapid inflation, and with a rapidly-ascending scale of direct taxation such as we have, certainly after this year's Budget, merely to leave the standard rate as it was at a time when more and more people are reaching the top earned income rate is to increase the pressure of direct taxation.
If the Chancellor is to give real evidence of the genuineness of his concern about the present level of direct taxation, he should acknowledge the inflation argument, which I need scarcely point out is not the same as the healthy buoyancy of the Revenue argument. If people over the whole country were earning larger real incomes and having much more spending power in terms of goods at their disposal, that would be another matter. What I am talking about is sheer naked inflation, which makes rapidly-ascending tax scales more of a burden as the years go by without the Government's having to increase them. To that extent, a token reduction at least is required.
I come now to the third of the flags which we wanted to run up with our innocent-seeming Amendment, which of course we shall not dream of pressing to a Division.
§ Mr. Wainwright
My constituents in the West Riding are used to working to very fine margins, but I am not sure about all the other Liberal electorates.
Third, we would like to state our fear about the status of the standard rate. As the volume of earned income suffering only the earned income rates of tax, and mostly the lower earned income rate—the 6s. 5d. rate—increases much faster than unearned incomes, there seems to us a great danger of the standard rate going the dismal way of the old profits tax and the present corporation tax under both the other parties. These very important revenue-yielders have not been paid by a large number of voters. This seems to us, as democrats, an extremely dangerous situation.
Under successive Conservative Governments the rate of profits tax, a valuable yielder but representing very few votes, went slyly up and up. Under Labour Governments, perhaps a little more understandably, the rate of corporation tax, also paid by only corporate bodies which themselves have no votes, and very few of whose members in relation to the total electorate have votes, has gone up. There is a danger of the standard rate, to which Liberals attach great importance, going the same way, and there may be a tendency for the present and future Governments to alter those tax reliefs which, as the right hon. Member for Enfield, West (Mr. fain Macleod) has just pointed out for instance in the case of young voters can have a very considerable electoral effect—to alter the various reliefs and allowances and leave the standard rate untouched. If that is the trend, we as democrats would greatly regret it.
I have been able only to voice these as suspicions tonight, but I hope that either during this debate or later the Government will be able to give us some reassurance.
§ Mr. Ridsdale
Listening to the hon. Member for Colne Valley (Mr. Richard Wainwright), I feared that the Liberal Party is living in the past. The hon. Gentleman must recall that about 100 years ago the Liberal Government of the day were defeated because they raised income tax by 3d. I had hoped that the hon. Gentleman would have a little more courage a hundred years later. I am sorry that he has not.
1129 I am torn between supporting the Amendment of my hon. Friend for Wycombe (Mr. John Hall) and that of my right hon. Friend the Member for Kingston-upon-Thames (Mr. Boyd-Carpenter).
§ Mr. Ridsdale
I could easily support both, but I shall come down in favour of the Amendment of my hon. Friend the Member for Wycombe. I do so largely because, although I had what the Chancellor has said at the back of my mind, the Chief Secretary is sitting on the Government Front Bench, and I recall the years when we used to advise him, in 1965, 1966 and 1967, that it would be wise not to increase Government expenditure at the speed at which it was being increased ahead of the growth in the gross national product.
Exactly the same arguments were put by the Chancellor and by hon. Gentlemen opposite then as they are putting now—" No, we cannot do that, because it is impossible to do." But what was the result? The result was that Government expenditure in 1965 increased by 6.5 per cent. and the gross national product by about 1.2 per cent.; in 1966 Government expenditure increased by about 6.5 per cent. and the gross national product by about 1.2 per cent.; and in 1967 Government expenditure increased by about 9.7 per cent. and the gross national product by 1.7 per cent. This led to devaluation. This was the chief factor in devaluation.
I am putting this argument forward because the Chancellor is giving to us now exactly the same constrictions—he has picked me out as being not prudent in some of the proposals I put forward. But thank heaven I am not a Socialist Chancellor; thank heaven I have no supporters at my back saying, " I am going to have a wealth tax to stop savings."
The proposal in Amendment No. 1, which I support, would not be brought about unless it was part and parcel of other measures. What a great difference it would be to have a Conservative Government in power to restore confidence, to get over, once and for all, the fear of a wealth tax, which is such a deterrent against savings. Other methods would also be used to encourage investment. 1130 But this is the crux of our economic position and the Chancellor and the Chief Secretary know it full well.
The Chancellor, in his donnish way, lectured me about investment and saving and said that I did not understand. But I had an Adjournment debate on this subject because I think the crux of our position is that we are not getting investment into manufacturing industry. If we get investment into manufacturing industry, it will be perfectly possible to do exactly what my hon. Friend the Member for Wycombe wants because we shall increase the gross national product.
Since the Chancellor says we have not had any international comparisons, let me just give some to the Chief Secretary. Over the last 10 years, investment in manufacturing industry in Japan, because of savings, has been twice the rate of ours annually, and this is why steel production in Japan now is 100 million tons, compared to about 25 million tons here. This is the crux of the problem. This is why Socialism has failed, because it has failed to encourage savings.
It is on this theme that I wish to talk on this Amendment. When one looks at the kind of tax and the disincentives that go right through the economy of the country today, and the effect on the ordinary individual, then one understands full well why we are not getting the kind of investment in manufacturing industry that there is in Japan—indeed, in West Germany as well, whose rate of investment is half as much again as ours over the last 10 years.
Is it right that a single person earning £29 a week—this is what a skilled plasterer or bricklayer can earn—should pay in tax £335 a year, and another £50 for National Insurance, a total of about £380? When one allows for a proportion of his money to be spent on alcoholic drinks, tobacco, etc., all indirect tax, I estimate that he is paying out another £220 annually in indirect taxation. I estimate that a single man earning £29 a week pays to the central Government about £600 a year, excluding what he pays local government as well.
This is the disincentive. The country cannot afford to save because such individuals are overtaxed. In the name of 1131 Socialism we are trying to create an over-burdensome economy, a luxurious economy, without concentrating on and seeing that investment goes into manufacturing industry and our gross national product increases.
We have learned a lot about equal pay recently. A ward sister on average draws about the same rate of pay as a plasterer, about £29 a week. I estimate that her tax position is about the same as that of the skilled plasterer, and I estimate—I think it is an under-estimate—that she pays about one-third of her income in direct and indirect taxation, or over £600 a year, to the central Government alone. With figures of this kind, I can well understand the strong feelings of my hon. Friend the Member for Nelson and Colne (Mr. Waddington), who spoke so admirably in this debate, coming from the marginal seat that he does and having just fought a victorious battle. He knows the feeling in the country and how people are being constrained, feeling clamped down in a straitjacket because of the amount of Socialism and Socialist taxes we have.
I ask the Chief Secretary to correct one figure on direct taxation, and that is the net figure of taxation for nurses, for the total pay of nurses, which the Secretary of State for Social Services spoke about yesterday. I am wandering slightly outside the Amendment here, because what I want to do is to continue my argument to emphasise the kind of burdens of taxation that there are on the people on £29 a week.
Let us look at the person on £20 a week. Is it right for a single man earning £20 a week—this is what a railway-man earns in North-East Essex; it might be higher in the hon. Gentleman's part of the world—who has to do overtime as well on Saturdays and Sundays, to pay £186 15s. 6d. in tax? He is perhaps a few shillings better off because of the Finance Bill.
I have mentioned the effective rate because there is a complete deception about what a man has to pay. The Inland Revenue puts a pamphlet into people's pay packets, under the instructions, no doubt, of the Chief Secretary, but it does not state the true position because it says nothing about indirect taxation at all. I estimate that the effect- 1132 tive rate for a man on £20 a week is about £375. Over one-third of his hard-earned income goes to the central Government. There are also local government rates as well.
What is the position of women earning this amount of pay? On the basis of equal taxation for women, I estimate that a staff nurse in a hospital earning £20 a week pays about £375 a year to the central Government, including £186 15s. 6d. in income tax. This is why I feel so strongly and support Amendment No. 1. I believe that if some effort is made to reduce taxation we shall get the savings which are so necessary into manufacturing industry and thereby increase the gross national product and again be in a position to get the economy moving.
A large number in North-East Essex are paid about £16 a week. Is it right for a single man earning £16 a week to pay £132 in income tax, plus £140 in indirect taxation? Let us remember also that this is the kind of tax burden of many single women, such as our secretaries, who are earning this kind of wage. This is why people feel so strongly and again why I support the Amendment.
The Chancellor referred to the principle of savings. I want to point out how much of total expenditure, both current and capital, should be met by taxation. I know that the right hon. Gentleman can argue cogently in such a debate and dot the i's and cross the t's and tell me that I am not being prudent. But the object of putting down an Amendment like this is that we should have a star to aim at. There should be a pointer to where we want to go. We do not wish to be irresponsible or imprudent. Across the Floor of the Chamber, hon. Members can call each other irresponsible but the point is whether it is right to meet the capital needs of the Government as well as their current needs out of taxation.
In 1968 the current account of the Government involved some £14,399 million and the capital account some £4,773 million. In 1970–71 the estimate puts the total current spending at £16,657 million and capital expenditure at £5,340 million. For roughly every 21s. taken in tax 5s. goes in capital spending. This trend has grown progressively over the last five years.
1133 Public expenditure on capital account must be financed by genuine borrowing and not from current revenue from taxation. I am sure that the Treasury is wondering how to get out of the straitjacket it has got into with the Budget surplus it has. How dearly it would like to see that Budget surplus invested in manufacturing industry so that we could produce more wealth. The Amendment is a pointer in the right direction. We did it in Government because the one thing that matters to a Government is that people should have faith and confidence in them.
People will have confidence in a Conservative Government. We shall get more capital coming in from abroad. We shall have no threat of a wealth tax. We shall take measures to help over estate duty. We hall get away from many of the views of many hon. Members opposite, and we shall be able to get investment once again into manufacturing industry. People who have looked after their own finances prudently do not look after the country's finances imprudently. This is why it is important to see that we take prudent action, and I am certain that we should take that action if we followed the excellent advice of Amendment No. 1.
§ Mr. Kenneth Baker (Acton)
Any discussion of income tax has to start from the irrefutable fact that over the last six years the yield has gone up very substantially—from about £300 million in 1964 to about £5,000 million this year. This is an icrease of about 60 per cent., or 10 per cent. a year. In 1964 income tax represented about 9½ per cent. of the gross national product. It now represents about 13½ per cent. If the Prime Minister's famous pledge about not increasing taxation in the life time of a Parliament were applied now to income tax, we should not be discussing a reduction of 9d.;he would have to be proposing a reduction of 3s. in the standard rate. That is the size of the problem.
An argument put by the hon. Member for Heywood and Royton (Mr. Barnett) is the current heresy being put about this year. It is that the incentive argument on direct taxation is not very important. This has been stated also by the hon. Member for Ashton-under-Lyne (Mr. Sheldon), who has been pressing the Chancellor to have an examination of the effect on incentive in relation to direct 1134 taxation. The hon. Member for Heywood and Royton wrote an article in The Sunday Telegraph last Sunday. He started with characteristic modesty by saying that he had not been invited to do so before and would probably not be invited again. Having read his argument, I would not dissent from that judgment.
The nub of the hon. Member's argument is that if one reduced the standard rate of income tax by Is. in the £, a man earning £20 a week would be only 5d. a week better off. One can turn that argument on its head. If it does not encourage a man to work harder by a reduction of Is. in the standard rate, giving him an extra 5d. a week, it would not discourage him if one increased the standard rate by ls. in the £ and increased his income tax by 5d. a week. The hon. Gentleman is saying that it has neither an incentive nor a disincentive effect, but he would not think of putting it in those terms in his election address because he knows that his electors in Heywood would have none of it. They did not, incidentally, even have a chance to vote for Labour candidates in the county council elections there because the six Tories were returned unopposed. His electors know only too well that they are over-taxed.
When hon. Members say that they lack evidence of this, I ask them to come to my surgery on Saturday mornings. Last Saturday, a man came in and showed me what he had got for working that morning. It was 20s. He almost physically assaulted me, believing that I was responsible for the income tax which had been taken off his wage for that morning's work. I managed to divert his spleen from me to a poster close to my headquarters bearing the Prime Minister's face and saying, " Labour's ideals are yours, aren't they? " If what the Labour Party stands for is no real reduction in indirect taxation but a claim by members of its Finance Committee, who are most eloquent and knowledgeable on this subject, that the disincentive argument is irrelevant, it seems to me that it is retreating from any sort of commitment to a reduction in direct taxation. This has not been spelled out clearly from the Front Bench.
As a result of the buoyancy of our economy and particularly of wages, more 1135 and more people are sucked into the tax net each year. As I said on Second Reading, the 2 million who are dropped out will become a regular feature of almost every Budget from now on. Every Chancellor will automatically have to drop out 1 or 2 million from the tax net each year if the present system remains unreformed. I refer to this group as the Treasury's " yo-yo ". They are dropped out this year and they will be bouncing back towards the end of the year and most will be back in the net by the next Budget.
What was interesting was that the Chancellor recognised this. He has always recognised this, and it is strange that he has not acted on it now that he is Chancellor. Tonight he said that income tax was meant to be a minority tax. It has now become a majority tax. It was devised to tax only a very small band of very rich people and it has slowly worked further down through society. The net result is considerable inequity at the bottom level and the top level, with very high marginal rates for the poor wage earner and the very rich wage earner.
I turn to the general need for a reform of the tax system. Almost every speaker has said that reform is needed. Our system is so complicated now that I should think that all hon. Members present tonight, apart from those who are accountants, do not know what their marginal rate of tax is or what their marginal rate was last year. When a taxation system is not understood, it is bound to fall into disrepute. Eventually, taxes which are in disrepute will not be paid. So there is a compelling need for thorough-going reform.
Where does one start? I used to be a great enthusiast for tinkering with the system, making it simpler here, clearer there, expressing things as percentages, reducing some of the allowances and making them payable through the social security system. But that is only tinkering. The only answer now, I think, is to rewrite our tax system and combine it with the social security system, as has been advocated tonight.
But before we reach these Elysian fields, we should make a start by eliminating the obvious anomalies; the two- 1136 ninths earned income allowance could be rounded off to 30 per cent. and the one-ninth to 15 per cent. But I would go further. I should like to see the distinction between earned and unearned income abolished altogether. This distinction, ironically, was introduced by the person who was the subject of a biography by the present ChancellorAsquith—in his second Budget in 1907. Up to then it had not existed, and what was interesting about that important Budget
§ Mr. W. Baxter
On a point of order, Mr. Irvine. May I be told to what Amendment the hon. Gentleman is speaking?
§ Mr. Baxter
Do I understand that the comments to which we are listening appertain to that Amendment?,
The Temporary Chairman
I could not hear what the hon. Gentleman said, so I find it a little difficult to answer. If anything were out of order, I would have drawn the attention of the Committee to it.
§ Mr. Baker
I am grateful for your Ruling, Mr. Godman Irvine. As I was saying, when Asquith brought in the distinction between earned and unearned income, it was only after a Select Committee on Income Tax, chaired by Sir Charles Dilke, came up with this suggestion. It had been set up only six months before and had been given instructions to report within six months. The point is that one can introduce important changes in income tax and income tax law without a Royal Commission which will sit for two, three, four or five years. It can be done, if the will is there.
This distinction is unfair. Unearned income is savings income and in one way or another it has already been taxed, because it arises from capital. If it is inherited, one pays death duties. If it has been gained during one's life, there is capital gains tax, and if it is saved out of income—least likely of all—it has already borne income tax. So this discriminatory rate is a form of double taxation.
1137 But what was most disappointing was that neither the Chancellor nor hon. Members opposite made any declaration or commitment to reform the tax system. The Chancellor has backed away from that. It is very depressing that after six years we have made no progress towards simplification of our tax system. It may be that the accumulated weariness of six years has deposited this burden on the Treasury Bench and that they are devoid of ideas. Being devoid of ideas, they now attack the personalities who lead the Conservative Party.
Reducing taxation is a means, I believe, of motivating people, particularly the managerial classes. Our economic problems will not only be resolved by trade union legislation. They will basically be resolved by better management. To stimulate and encourage industry and middle-rank managers, we must reduce the rate of income tax. What has the Labour Party done for these younger managers and middle managers? It has put up income tax, denied them the chance of share options, disallowed the interest on loans which they would take out to buy shares in their companies and discouraged them when they need to be encouraged.
So my right hon. Friend the Member for Enfield, West (Mr. Iain Macleod) has clearly delineated the basic difference between the two sides of the Committee. We are committed to reducing direct taxation so as to encourage people to keep more of what they earn, because we think, as John Stuart Mill said over one hundred years ago, that any society is only as creative and active as the individuals who make it up are creative and active.
§ Sir Brandon Rhys Williams (Kensington, South)
I am an incurable optimist and I will start by expressing the hope that the Committee will never again have an unrealistic debate of the kind which we are bound to have when considering the standard rate of income tax in isolation from all the other money-raising and money-spending activities of the Government. It is useful only if it allows us to run over some basic considerations about what the Government are doing in the direct taxation of incomes.
I do not know precisely what the national taxable income will be in 1138 1970–71, but, for the convenience of the Committee, let us suppose that it is about £30,000 million, that being the total amount of income liable for direct taxation. If income tax were being levied at 41.25 per cent., the yield should be at least £12,000 million. Even if we reckon that there is a substantial allowance for earned income, which one ought to bear in mind, and which brings the average marginal rate for most people down to about 6s. 5d.. one would still expect income tax to yield about £10,000 million. But the Government's forecast of what they will receive from the operation of an income tax at a standard rate of 41.25 per cent. is £5,653 million. One might have expected a standard rate of over 40 per cent. to yield at least £12,000 million, or £10,000 million taking account of the earned income concession. Yet the yield is to be only about half that amount.
We should ask ourselves, where have all the millions gone? The hon. Member for Heywood and Royton (Mr. Barnett), who made some interesting and worthwhile comments on the subject of negative income tax, will join me in recognising that the negative concessions which have developed over the decades in the income tax structure—some Members may say that they are eating its heart out—are more effective than the income tax system itself in that they are taking £6,000 million out of the hands of the Exchequer. They are making the standard rate of tax into a hollow mockery. There are highly undesirable side effects of the existence of this hollow mockery, and that is why I hope that this will be the last time that we shall have an unrealistic discussion of this kind.
Income tax contains an enormous and forgotten secret welfare state for the better off. Suppose that income tax was simply intended to raise £5,600 million. The rate of tax could be under 20 per cent.—half the standard rate which the Government propose in the Budget. The point that I wish to make, which is perhaps more surprising even than the conclusion I have reached so far is that taxes on income do not raise any money at all. They do not raise any money at all when viewed in the context of what the State does in raising money from individuals and dispersing money and services back again to individuals.
1139 I think it is just a curious coincidence, and probably not a manifestation of the Treasury mind, that the yield of direct taxes—that is, income tax, surtax, national insurance contributions and selective employment tax, which must be regarded as a tax, although an oblique one, on income—that the State's money-raising operation more or less balances with its expenditure on family allowances, national insurance benefits, supplementary benefits, education and health. Therefore, the State's direct money-raising activities and money-spending activities —the relationship between the individual and the State—may be said to come to precisely nothing in raising revenue for the general purpose of the State's expenditure on its own projects. Income tax is simply one component in a giant re-distributive system at the end of which, taking one year with another, the State keeps virtually nothing.
Viewing income tax as a component of a vast re-distributive system, we must recognise that it is part of the Government's social purpose rather than of their money-raising activities. Considering income tax from the social or money-transfer point of view, the unreality of the survival of a so-called standard rate, be it 41.25 per cent. or any other, must be seen. It is a completely artificial leftover. If we allow left-overs to remain in our thinking on taxation, we shall never be able to modernise our tax system in the way in which all hon. Members have been asking the Government to do.
I hope that, in future, national insurance contributions and selective employment tax will be taken into the account simultaneously with considerations of the standard rate of tax. This is particularly important at present when we are on the verge of making the national insurance contribution a wholly earnings-related tax. At the same time the Chancellor of the Exchequer, in his Budget, announced that he would make selective employment tax earnings related as well. For fictional purposes at election time, it may be desirable to pretend that income tax remains wholly separate from the other tax on income which we call a contribution, and the further tax on income which is called an employer's tax. 1140 But 41.25 per cent. becomes more and more meaningless when one bears in mind the enormous negative welfare state which is carried along within the income tax system and all the other activities bearing directly upon income—particularly the other income-related taxes represented by the national insurance system and selective employment tax.
With regard to positive concessions, it has always surprised me that the Government, having decided to raise family allowances and to reduce child allowances in the 1968 Budget, took fright and did not go any further with the movement so as to achieve the simplification which seemed to be in their minds when they started on this journey. Having reached an unsatisfactory halfway house where they had neither made family allowances enough nor simplified the taxation system by abolishing child allowances, they stuck. The needle is in the groove, and we look to someone to give it a push so that this interesting tune may continue. But again this year the Budget gave us no clear indication of the Government's thinking on the positive concession.
I fear that if we persist in talking about a standard rate of 41.25 per cent. or any other rate without bearing in mind what the Government are doing simultaneously by raising money from the public and distributing it, not only will the debate in Committee be seen to be meaningless, but it will become increasingly meaningless to the public.
My hon. Friend the Member for Acton (Mr. Kenneth Baker) asked how many members of the public have any idea of their marginal rate or their actual rate of tax. The income tax system has become incomprehensible. The tax which people pay, even if one considers income tax in isolation from the rest, has nothing to do with the standard rate. Some people will be paying a marginal rate of 41.25 per cent., but they will be relatively few. The vast majority of the population are paying a marginal rate of 6s. 5d. and an average rate which is much less than that. Thus, the income tax sets out to raise £12,000 million but is producing less than half that amount. It has the maximum disincentive effect and it is a relatively ineffective means of raising revenue from the public.
It is appropriate at this stage to say a few words on the subject of negative 1141 income tax, although I do not want to repeat my remarks on Second Reading. However, I hope that we shall learn to drop the unfortunate expression " negative income tax ", and that we shall think in terms of much more realistic concepts, such as positive allowances. Family allowances have been with us since 1945 and they are well understood by the public, whereas negative income tax will never be understood by the public because it is barely comprehensible even to experts.
I think that it was the right hon. Gentleman the Member for Sowerby (Mr. Houghton) who started to popularise the expression " receive as you need ". That certainly does convey a meaning. For those who finish down on their transactions with the State it is appropriate that they should call their system " Pay as you earn ", and for those who end up up on their transactions with the State it is appropriate to use the expression " receive as you need ". But the complexities of pay as you earn are made infinitely worse when one puts a mirror underneath them and tries to value the claims for benefit that result from a so-called negative tax system. I do not know whether it was Norman Macrae, in the Economist, or an American writer who invented the expression " positive tax credits ", but it makes very much better sense and is much more meaningful altogether than " negative income tax ".
When talking about positive tax credits or " receive as you need " or any other phenomenon I hope that this Committee will look at the entire money raising and money spending operation of the State as a single operation. If one is examining the operation of a two-stroke engine one does not attempt to consider simply what is happening when the cylinder head is moving in one direction. One must consider the efficiency or otherwise of a two-stroke engine by looking at the movement up as well as the movement down. So let us learn to look at the redistribution of income, which is in fact what income tax is, as part of a single operation. Do not let us fuddle ourselves with concepts like 41.25, which really, I suppose, was not even a nineteenth century concept in origin, but an eighteenth century one. If we could only see what the Government are doing by raising money by way of direct tax and then refunding it 1142 either in the form of positive tax credits, or services for which people would otherwise have to pay themselves, we begin to get a sense of what really happens in this relationship between the individual and the State.
I should like to look at it in another way as well. There ought really in due course to be two fundamental considerations in the Budget. One of them is the net position of the State, and the other is the net position of the individual. It is, I think, impossible for hon. Members at the present time to see what effect the Budget has in terms even of standard categories of families at stereotyped income levels. I doubt whether there is a single hon. Member—and I do not want to impugn the efficiency of highly qualified Members—who could work out 50 standard stereotyped examples showing the effect of all the tax and benefit relationships of individuals with the State without making a mistake.
I was grateful to the officers of the Inland Revenue last year when they made these calculations for me—as I understand, for the first time—showing the effects of family allowances, national insurance contributions and income tax over a range of incomes and over a range of stereotyped family circumstances. At first they protested when I asked for this to be done; they said it had never been done before; but when I pressed it upon them they agreed to do it. They were very obliging and worked out tables and covered a lot of paper with figures. What those figures show is not only the complexity of the relations between the individual and the State but the anomalies which are arising and of which we are only just beginning to be aware.
A properly balanced budget on established accounting notions is possibly a pre-Keynesian idea. But it would be advantageous if the Government presented their Budget figures, among the other innovations which they are giving us, so as to show the direct taxation and the direct spending for individuals as a single self-balancing, or nearly self-balancing, entity. One would then be able to take out the re-distributive activities of the State completely from the rest of the Budget, and see what the State is doing in raising money for its own purposes and what it is doing by way of raising money from one individual 1143 to give back to another—one could see the circulatory activities in the Budget. That should be published quite separately and seen as a separate activity of the State.
Most important of all, we must see clearly the net position of individuals after they have completed their statutory transactions, in both directions, with the State. We would then understand better what we are only beginning to get a glimmering of, and that is, the true marginal tax effect on individuals. I have asked the Chancellor of the Exchequer to give us the results of any field survey on the disincentive effects of taxation. I hope that we shall have an informative answer from him on that in due course. My own feeling is that, even if he has some information, it will not be nearly enough, for instance, to enable the Committee to form an opinion as to whether a marginal rate of tax of 41.25 or another is the right one for the good of the economy as a whole. Till we have some conception of the extent to which the State may raise money from individuals without damaging the economy we cannot form any concept of what the State ought to be doing in the way of redistribution of income. I have a very strong suspicion that this marginal rate of 41.25 is damagingly too high, but we must have reliable data.
There are some bands of income where 41.25 has no disincentive effect, but there are likely to be other bands where it has an extremely adverse effect. If I had to make a guess I would not be able to say whether this 41.25 has the most adverse effect in terms of incentive at the lower ranges of income or at the higher ranges, although I have made some some study of this subject. I have no accurate data to go on; I have not an inkling of an idea whether it has a particularly adverse effect at the lower ranges or the higher ranges. If the Chief Secretary has, I hope he may communicate his thoughts to us on this subject tonight.
We have not only to think about the disincentive effects of marginal rates of tax. We should also look at the whole social problem of the alienation of the individual from the community. There is no doubt at all that since the war the direct taxation of individuals has 1144 produced a distinct sense of alienation of the individual from the community. Of course, in war time, tax rates had to be very high, and for obvious reasons; but since the war far too little attention has been given to this effect, and to the fact that no one is paying his tax willingly now. Not that people paid their taxes willingly before the war or for that matter in the eighteenth century; but there is now a growing sense that it is proper to fiddle one's tax, and that is a highly undesirable and dangerous development. I do not know whether it is a reversible development, but it ought not to be allowed to go on any more. My feeling is that in the tax-paying public's mind there is a growing sense that tax is being used as punishment; that it is being used in an arbitrary way and that it is incomprehensible. What one should have in paying one's tax is a sense that one is making a contribution to a club to which one is happy to belong. At 41.25 per cent. one cannot have that feeling of belonging.
I conclude by making one specific recommendation to the Committee, one-half of which might be echoing what was said by the hon. Member for Heywood and Royton (Mr. Barnett), that a Royal Commission should be appointed to study the redistribution of income; alternatively, a Select Committee of the House should be set up on direct taxation and social benefits. However this subject is approached, it is becoming increasingly necessary for us to take into account the entire picture and not to have further debates such as we are having this evening in which we look at the standard rate of tax in isolation from everything else.
§ [MR. SYDNEY IRVING in the Chair]
§ 7.30 p.m.
§ Mr. Diamond
I always listen to the speeches of the hon. Member for Kensington, South (Sir B. Rhys Williams) with great interest. I hope that I shall not embarrass him by saying that he always expresses novel views in a fresh way. One never knows quite what is coming next, except that it will be interesting, and stimulating. He had much to say tonight on matters which are of great interest to me and on which I have spent a great deal of time. These are matters which are not so very controversial and on which we could do more 1145 of the things which both he and I would like to see done.
I agree with the hon. Member that " negative income tax " is not a good title. It is a label which includes a whole host of different articles. The hon. Gentleman asked whether the Government would publish some of their findings. I have considered this carefully, and I do not think that the considerable work that the Government have done is appropriate for publication, although it is appropriate for debate.
I very much hope that there will be an occasion for a debate on this general topic. The arguments are serious and important, and everyone's inclination is in the same direction, to try to find a measure whereby we can deal selectively with poverty and need in a way that serves as a simplification of our tax structure, saves expense and is more efficient. If this were possible, everyone would want to see it done. I very much hope that there will be an occasion to go into this in considerable detail. I am sure it would be of help to the Government and might also be of help to the House of Commons.
The hon. Member for Colne Valley (Mr. Richard Wainwright) spoke first. I am sure that, as the Chancellor of the Exchequer has already spoken fully, the hon. Member will not expect me to do more than refer briefly to what he said. He, too, referred to negative income tax, and he must have spent some time considering its difficulties because he seemed to be fully aware of some of them. He asked the Chancellor to make a token reduction to show that he was still aware of the inclination which he expressed earlier with regard to the tax on high earned incomes. When we come to a debate on surtax I may have the opportunity of catching the Chairman's eye and of saying in what direction and to what extent my right hon. Friend has made not a token but a very considerable reduction in the tax on high earned incomes.
The hon. Member for Harwich (Mr. Ridsdale) spoke with considerable feeling and drew my attention to two points. The first was the need to have regard to the views of his hon. Friend the Member for Nelson and Colne (Mr. Waddington), who was refreshed by recent meetings with the electorate, and we all recognise that that is very important refreshment. 1146 The second was the need to avoid at all costs a tax on wealth which would be such a deterrent to savings. As always, I listened carefully to the speech of the hon. Member for Nelson and Colne, who advocated, with considerable fervour, on the basis of his recent refreshment by the electorate, a wealth tax coupled with a reduction in surtax. Apparently, there is not complete unanimity on the benches opposite on what is and what is not a deterrent to savings, but that is something for the hon. Gentleman to take up with his hon. refreshed Friend.
I was also much interested by what the hon. Gentleman told me about the priorities in giving reductions in taxation. He gave examples of nurses, railway-men and those at the bottom of the scale who should receive help. If I may bring his mind back to the essence of this debate, the Chancellor has proposed a reduction which will mostly benefit those at the bottom of the scale. He has done this because, as everybody recognises, and as the hon. Member for Acton (Mr. Kenneth Baker) said in his intervention a moment ago, although the total impact of tax in this country compares equally with similar countries, we are disparate in two respects, first, at the high levels and, second, at the low levels.
The Chancellor thought it right on this occasion, the first occasion when it has been possible to make a serious alleviation in the tax burden, to help first at the bottom end. I am perfectly happy that the Committee should be fully aware that this is the difference in approach between the two sides. We are going for, and we think it right to go for, help where it is most needed, at the bottom of the scale.
This is exactly what we have done. We have given help where need is greatest. We have not given help where need is least, which is at the top of the scale. Standard rate relief, as everybody knows, is the most regressive form of relief, in that it helps those at the top disproportionately. That is why we are against this proposal.
§ Mr. John Hall
I am delighted that the Chief Secretary wound up the discussion on the Amendment, because it has given me an opportunity, in view of one or two uncomplimentary things that have been said about him this afternoon. 1147 to express my personal regard and respect for him. I was interested to hear my hon. Friend the Member for St. Ives (Mr. Nott) refer to him as a gamekeeper. I suggest that he may not be the kind of gamekeeper who would have appealed to Lady Chatterley, but I am sure that he would have appealed to Lady Chatterley's husband. It was perhaps suggested that the right hon. Gentleman was occasionally dull, but I say categorically that I regard him with great respect because he is always courteous, always clear, always persistent—
§ Mr. Hall
—and, when he is dealing with my Amendments, as my right hon. Friend has said, always wrong.
I welcomed the right hon. Gentleman's remarks about looking forward to a debate on negative income tax. This is an interesting and complex subject on which the whole Committee would welcome a debate. I should like to know how one would deal with the cases now dealt with through the social services, which would be difficult to deal with under a form of negative income tax. I hope there will be an opportunity to debate this before long.
The Chief Secretary rather spoilt what he said at the beginning by saying that the Chancellor of the Exchequer had brought about a serious alleviation of the tax burden, and that the relief was directed to the bottom end of the scale where it was most needed. If the single man, the teenager and those with no real responsibilities who are certainly not on the poverty line are regarded as those in greatest need of relief, the Chancellor has succeeded in his aim. Despite that, as the Chief Secretary knows, he has left this country still with a burden of £3,000 million plus more tax than when the Government came to power. The Tory administration for 13 years managed to reduce taxation by a total of £2,000 million. The present Government have managed to increase it consistently year by year, until we now have an increased burden of £3,000 million. That is not a record to be proud of.
At the beginning of my remarks in moving the Amendment there was some slight difference of view about the amount 1148 the Amendment would cost, and I was delighted to hear the hon. Member for Ashton-under-Lyne (Mr. Sheldon) withdraw his criticism of what he described as my inaccuracies. I am glad he put that matter right.
But the suggestion has run through the debate that the amount suggested was too much. As I tried to point out at the beginning of my remarks—and I take full responsibility for not having made myself clear—if there were to be a worthwhile reduction in direct taxation, the Budget system as a whole would have to be re-cast and there would have to be various changes depending on the judgment of the economic outlook for the year to enable an effective reduction in the impact of direct taxation to be brought about. I was not suggesting at that time that to hand out, to use the phrase used by hon. Members opposite, £525 million, plus the £115 million that we are told the surtax Amendment would cost, would be the right thing to do. But it would be the right thing to do against the background of a different Budget strategy.
It was also suggested that my Amendment produced a relief of only 4s. a week to the average married man on the average industrial wage. I gather that it was being said that unless a worth-while and large increase is given to the man on the average industrial income, one should not be given at all and that we should ignore most of the highly-paid craftsmen, artisans and middle-range executives and professional men, quite apart from those in the higher-income brackets. That does not seem to be a philosophy which would commend itself to the country as a whole.
The Amendment, as the right hon. Gentleman knows, was designed to stimulate debate on the tax system as a whole so far as it affected direct taxation and to get some idea what we might do about it. In that respect the Amendment has been successful since we had had interesting suggestions and contributions from both sides of the Committee. There have naturally been more contributions from this side of the Committee because there have been more members who have spoken from this side. But the result has been extremely interesting.
My right hon. Friend the Member for Enfield, West (Mr. Iain Macleod) sounded 1149 the matter out very well. He said that the Labour Government by and large through their philosophy and the way in which they handle their affairs are a Government of high taxation. They are unable to see how taxation can be reduced. No matter what ideas are put forward for a reduction in the burden of taxation on the people of this country, there are always arguments from the Government benches saying that it cannot be done. On the contrary, during the years of Conservative administration we were a Government which were always finding ways in which taxation could be reduced. Not only did we succeed in reducing taxation during our years of office, but we did so against a background of increasing social service benefits and facilities.
If the country has to choose on the basis of the record of two Governments
§ in office, there is no doubt whatever that it will choose to support a party which has shown that when in office it can do the things it promises to do, that it can reduce taxation and still increase the standard of living of all people in the community. There is no doubt which party the country will choose. I suggest to my right hon. and hon. Friends that in pursuance of our philosophy and our policy of reducing taxation, making it possible for our people to exercise free choice in how to use their earnings and money, they should join with me in supporting the Amendment in the Division lobby.
§ Question put, That the Amendment be made:—
§ The House divided: Ayes, 153, Noes 231.1153
|Division No. 124.]||AYES||[7.44 p.m.|
|Alison, Michael (Barkston Ash)||Goodhart, Philip||Monro, Hector|
|Allason, James (Hemel Hempstead)||Gower, Raymond||Montgomery, Fergus|
|Archer, Jeffrey (Louth)||Grant, Anthony||Morrison, Charles (Devizes)|
|Astor, John||Grant-Ferris, Sir Robert||Nabarro, Sir Gerald|
|Atkins, Humphrey (M't'n & M'd'n)||Grieve, Percy||Neave, Airey|
|Baker, Kenneth (Acton)||Griffiths, Eldon (Bury St. Edmunds)||Nicholls, Sir Harmar|
|Baker, W. H. K. (Banff)||Gurden, Harold||Noble, Rt. Hn. Michael|
|Balniel, Lord||Hall, John (Wycombe)||Nott, John|
|Bennett, Dr. Reginald (Cos. & Fhm)||Hall-Davis, A. C. F.||Onslow, Cranley|
|Biggs-Davison, John||Hamilton, Michael (Salisbury)||Orr-Ewing, sir Ian|
|Birch, Rt. Hn. Nigel||Harrison, Brian (Maldon)||Osborn, John (Hallam)|
|Boardman, Tom (Leicester, S.W.)||Harvie Anderson, Mils||Page, John (Harrow, w.)|
|Body, Richard||Hawkins, Paul||Pearson, Sir Frank (Clitheroe)|
|Boyd-Carpenter, Rt. Hn. John||Heald, Rt. Hn. Sir Lionel||Peyton, John|
|Boyle, Rt. Hn. Sir Edward||Higgins, Terence L.||Pike, Miss Mervyn|
|Brown, Sir Edward (Bath)||Hiley, Joseph||Powell, Rt. Hn. J. Enoch|
|Buchanan-Smith, Allick(Angus, N & M)||Hogg, Rt. Hn. Quintin||Price, David (Eastleigh)|
|Buck, Antony (Colchester)||Holland, Philip||Prior, J. M. L.|
|Bullus, Sir Eric||Hordern, Peter||Pym, Francis|
|Burden, F. A.||Howell, David (Guildford)||Quennell, Miss J. M.|
|Campbell, B. (Oldham, W.)||Hutchison, Michael Clark||Ramsden, Rt. Hn. James|
|Campbell, Cordon (Moray & Nairn)||Jenkin, Patrick (Woodford)||Rawlinson, Rt. Hn. Sir Peter|
|Carlisle, Mark||Jennings, J. C. (Burton)||Renton, Rt. Hn. Sir David|
|Cary, Sir Robert||Joseph, Rt. Hn. Sir Keith||Rhys Williams. Sir Brandon|
|Cookie, Robert||Kaberry, Sir Donald||Ridley. Hn Nicholas|
|Corfield, F. V.||Kimball, Marcus||Ridsdale, Julian|
|Costatn, A. P.||King, Evelyn (Dorset S.)||Royle, Anthony|
|Craddock, Sir Beresford (Spelthorne)||King, Tom||Russell, Sir Ronald|
|Crouch, David||Kirk, Peter||Sharples, Richard|
|Crowder, F. P.||Kitson, Timothy||Shaw, Michael (Sc'b'gh & Whitby)|
|d'Avigdor-Goldsmid, Sir Henry||Knight, Mrs. Jill||Silvester, Frederick|
|Dean, Paul||Lane, David||Speed, Keith|
|Deedes, Rt. Hn. W. F. (Ashford)||Legge-Bourke, Sir Harry||Stainton, Keith|
|Dodds-Parker, Douglas||Lloyd,Rt.Hn.Geoffrey(Sut'nC'dfield)||Stoddart-Scott, Col. Sir M.|
|du Cann, Rt. Hn. Edward||Lloyd, Rt. Hn. Selwyn (Wirral)||Summers, Sir Spencer|
|Elliott, Capt. Walter (Carshalton)||McAdden, Sir Stephen||Taylor, Frank (Moss Side)|
|Elliott, R.W.(N'c'tle-upon-Tyne, N.)||MacArthur, Ian||Temple, John M.|
|Emery, Peter||Maclean, Sir Fitzroy||Thatcher, Mrs. Margaret|
|Errington, Sir Eric||Macleod, Rt. Hn. Iain||Turton, Rt. Hn. R. H.|
|Farr, John||McMaster, Stanley||van Straubenzee, W. R.|
|Fletcher-Cooke, Charles||McNair-Wilson, Michael||Vaughan-Morgan, Rt. Hn. Sir John|
|Foster, Sir John||McNair-Wilson, Patrick (New Forest)||Waddington, David|
|Fraser, Rt.Hn.Hugh (St'fford & Stone)||Maddan, Martin||Walker, Peter (Worcester)|
|Galbraith, Hn. T. G.||Maginnis, John E.||Waker-Smith, Rt. Hn. Sir Derek|
|Gilmour, Ian (Norfolk, C.)||Maude, Angus||Walters, Dennis|
|Gilmour, Sir John (Fife, E.)||Maudling, Rt. Hn. Reginald||Ward, Christopher (Swindon)|
|Glover, Sir Douglas||Maxwetl-Hyslop, R. J.||Weatherill, Bernard|
|Glyn, Sir Richard||Mills, Peter (Torrington)||Wells, John (Maidstone)|
|Godber, Rt. Hn. J. B.||Mitchell, David (Basingstoke)|
|Wiggin, A. W.||Woodnutt, Mark||TELLERS FOR THE AYES:|
|Williams, Donald (Dudley)||Wylie, N. R.||Mr. Reginald Eyre and|
|Wolrige-Gordon, Patrick||Younger, Hn. George||Mr. Walter Clegg.|
|Wood, Rt. Hn. Richard|
|Abse, Leo||Ginsburg, David||Morris, Charles R. (Openshaw)|
|Albu, Austen||Golding, John||Moyle, Roland|
|Allaun, Frank (Salford, E.)||Gordon Walker, Rt. Hn. P. C.||Mulley, Rt. Hn. Frederick|
|Alldritt, Walter||Gray, Dr. Hugh (Yarmouth)||Murray, Albert|
|Archer, Peter||Greenwood, Rt. Hn. Anthony||Neal, Harold|
|Ashley, Jack||Gregory, Arnold||Newens, Stan|
|Ashton, Joe (Bassetlaw)||Grey, Charles (Durham)||Norwood, Christopher|
|Atkins, Ronald (Preston, N.)||Griffiths, Eddie (Brightside)||Oakes, Gordon|
|Atkinson, Norman (Tottenham)||Griffiths, Will (Exchange)||Ogden, Eric|
|Bacon, Rt. Hn. Alice||Hamilton, William (Fife, W.)||O'Halloran, Michael|
|Barnes, Michael||Hamling, William||Orbach, Maurice|
|Barnett, Joel||Hannan, William||Orme, Stanley|
|Baxter, William||Harper, Joseph||Oswald, Thomas|
|Beaney, Alan||Harrison, Walter (Wakefield)||Padley, Walter|
|Benn, Rt. Hn. Anthony Wedgwood||Haseldine, Norman||Paget, R. T.|
|Bennett, James (G'gow, Bridgeton)||Healey, Rt. Hn. Denis||Palmer, Arthur|
|Bessell, peter||Heffer, Eric S.||Pannell, Rt. Hn. Charles|
|Bidwell, Sydney||Henig, Stanley||Pardoe, John|
|B[...]nne, John||Herbison, Rt. Hn. Margaret||Parker, John (Dagenham)|
|Bishop, E. S.||Hooley, Frank||Parkyn, Brian (Bedford)|
|Blackburn, F.||Houghton, Rt. Hn. Douglas||Pavitt, Laurence|
|Blenkinsop, Arthur||Howarth, Robert (Bolton, E.)||Pearson, Arthur (Pontypridd)|
|Booth, Albert||Hughes, Rt. Hn. Cledwyn (Anglesey)||Pentland, Norman|
|Boston, Terence||Hughes, Roy (Newport)||Perry, Ernest G. (Battersea, S.)|
|Bray, Dr. Jeremy||Hynd, John||Perry, George H. (Nottingham, S.)|
|Brooks, Edwin||Irvine, Sir Arthur (Edge Hill)||Price, Christopher (Perry Bar)|
|Brown, Rt. Hn. George (Belper)||Jackson, Peter M. (High Peak)||Price, Thomas (Westhoughton)|
|Brown, Hugh D. (G'gow, Provan)||Janner, Sir Barnett||Price. William (Rugby)|
|Brown, Bob(N'c't1'e-upon-Tyne, W.)||Jay, Rt. Hn. Douglas||Probert, Arthur|
|Buchan Norman||Jenkins, Hugh (Putney)||Randall Harry|
|Buchanan Richard (G'gow Sp'burn)||Jenkins, Rt. Hn. Roy (Stechford)||Rankin, John|
|Butler, Herbert (Hackney, C.)||Jones, Dan (Burnley)||Rees, Merlyn|
|Cant, R. B.||Jones, Rt. Hn. Sir Elwyn (W. Ham, S.)||Rhodes, Geoffrey|
|Carmichael, Neil||Jones, J. Idwal (Wrexham)||Richard, Ivor|
|Carter-Jones, Lewis||Jones, T. Alec (Rhondda, West)||Roberts, Albert (Normanton)|
|Coleman, David||Judd, Frank||Roberts, Rt. Hn. Goronwy|
|Concannon, J. D.||Kelley, Richard||Roberts, Gwilym (Bedfordshire, S.)|
|Craddock, George (Bradford, S.)||Kenyon Clifford||Robertson, John (Paisley)|
|Crawshaw, Richard||Kerr, Dr. David (W'worth, Central)||Rodgers, William (Stockton)|
|Cronin, John||Kerr, Russell (Feltham)||Roebuck, Roy|
|Crosland, Rt. Hn. Anthony||Lawler, Wallace||Rose, Paul|
|Dalyell, Tom||Lawson, George||Ross, Rt. Hn. William|
|Davidson, Arthur (Accrington)||Leadbitter, Ted||Shaw, Arnold (Ilford, S.)|
|Davidson, James(Aberdeenshire, W.)||Ledger, Ron||Sheldon, Robert|
|Davies, Dr. Ernest (Stretford)||Lee, Rt. Hn. Frederick (Newton)||Shinwell, Rt. Hn. E.|
|Davies, Rt. Hn. Harold (Leek)||Lee, John (Reading)||Shore, Rt. Hn. Peter (Stepney)|
|Davies, Ifor (Gower)||Lewis, Ron (Carlisle)||Sillars, J.|
|Davies, S. O. (Merthyr)||Lomas, Kenneth||Silverman Julius|
|de Freitas, Rt. Hn. Sir Geoffrey||Loughlin, Charles||Slater Joseph|
|Delargy, H. J.||Lubbock, Eric||Small William|
|Dell, Edmund||Lyon, Alexander W. (York)||Snow, Jullan|
|Dempsey, James||Lyons, Edward (Bradford, E.)||Spriggs, Leslie|
|Diamond, Rt. Hn. John||Mabon, Dr. J. Dickson||Steele, Thomas (Dunbartonshire, W.)|
|Dickens, James||MacColl, James||Swain, Thomas|
|Dobson, Ray||MacDermot, Niall||Symonds, J. B.|
|Doig, Peter||McElhone, Frank||Taverne, Dick|
|Dunn, James A.||Macdonald, A. H.||Tinn, James|
|Dunnett, Jack||McGuire, Michael||Tuck, Raphael|
|Eadie, Alex||Mackenzie, Gregor (Rutherglen)||Urwin, T. W.|
|Edwards, Robert (Bilston)||McKay, Mrs. Margaret||Varley, Eric G.|
|Edwards, William (Merioneth)||Mackie, John||Wainwright, Richard (Colne Valley)|
|Ellis, John||McNamara, J. Kevin||Walden, Brian (All Saints)|
|English, Michael||MacPherson, Malcolm||Walker, Harold (Doncaster)|
|Evans, Fred (Caerphilly)||Mahon, Peter (Preston, S.)||Wallace, George|
|Fernyhough, E.||Mahon, Simon (Bootle)||Watkins, David (Consett)|
|Finch, Harold||Mallalieu,J.P.W.(Huddersfield,E.)||Watkins, Tudor (Brecon & Radnor)|
|Fitch, Alan (Wigan)||Mapp, Charles||Weitzman, David|
|Fletcher, Raymond (Ilkeston)||Marks, Kenneth||Wellbeloved, James|
|Fletcher, Ted (Darlington)||Marquand, David||Wells, William (Walsall, N.)|
|Forrester, John||Marsh, Rt. Hn. Richard||Whitlock, William|
|Fraser, John (Norwood)||Mellish, Rt. Hn. Robert||Wilkins, W. A.|
|Freeson, Reginald||Mendelson, John||Willey, Rt. Hn. Frederick|
|Galpern, Sir Myer||Millan, Bruce|
|Mitchell, R. C. (S'th'pton, Test)||Williams, Alan (Swansea, W.)|
|Gardner, Tony||Moonman, Eric|
|Garrett, W. E.||Morgan, Elystan (Cardiganshire)||Williams, Alan Lee (Hornchurch)|
|Williams, Clifford (Abertillery)||Winnick, David||TELLERS FOR THE NOES:|
|Willis, Rt. Hn. George||Whistanley, Dr. M. P.||Mr. Ernest Armstrong and|
|Wilson, William (Coventry, S.)||Woodburn, Rt. Hn. A.||Mr. Ioan L. Evans.|
§ Clause 11 ordered to stand part of the Bill.