PARENT AND CHILD—REPEAL OF AGGRE GATION PROVISIONS, AND AMEND MENT OF SETTLEMENT PROVISIONS

HC Deb 12 May 1971 vol 817 cc452-518

7.0 p.m.

Mr. Barnett

I beg to move Amendment No. 6, in page 10, line 12, leave out paragraph (a).

The Temporary Chairman (Mr. Murton)

With this Amendment, I think that it would be for the convenience of the Committee to consider Amendment No. 7, in page 10, line 24, leave out paragraph (a).

Mr. Barnett

That would be agreeable to us, Mr. Murton. May I add my congratulations to you on your "maiden chairmanship", if that is the correct phrase. I hope that you enjoy our Finance Bill Committee deliberations as much as we have over the years.

Clause 10 demonstrates the fundamental difference between the two sides of the Committee on taxation methods. The attitude on this side of the Committee is one of equity, fairness and social justice, whereas the attitude on the other side involves the desire positively to assist those who wish to avoid taxation. [HON. MEMBERS: "Oh."] Well, I hope to prove this as I go along.

The 1968 Act, which this provision is to repeal, eliminated a gross unfairness between the mass of taxpayers on the one hand and a small number of taxpayers on the other hand, to whom it was open to use this particular method of avoiding taxation. The principle is that of the family unit, and it involves the concept that two identical families, with the same income, should not be taxed differently simply because, in one case, the income accrues to one member and, in the other, it is divided among a number of members of that family—and artificially at that.

In practice, we all know what this principle means. The wealthy grandfather effectively gives to his son via his grandson. This is what it is all about. I have no wish to prevent a grandfather making gifts to his son, or his grandson, or his daughter, or his granddaughter. On reflection, since I have a student daughter, it might be very useful to have a provision so that I might be prevented from making gifts to her, but that is not what I am attempting to prove here. I have no wish to prevent that sort of gift. All I am saying is that there is no reason that that gift should be allowable for any form of tax relief. This is what the Clause will do.

I have no obsession with tax avoidance. I do not wish to hound those seeking to pay the least possible amount of tax. That would be chasing my own tail. To adopt a famous dictum, a judge once said that it was no part of a taxpayer's duty to put the largest possible shovel of the Inland Revenue into his income. Equally, it is not part of our purpose—or should not be the purpose of this Committee—so to frame our tax laws to allow the largest possible shovel to be put in to relieve taxation for a small number of taxpayers at the expense of the great majority of the rest. This is the major principle which is involved here.

To obtain this particular form of relief one does not take out a life policy or seek to claim for a dependent relative. What one needs is expert advice on this method of tax avoidance. Therefore, it distorts the intention behind a fair tax system.

The main case made in our debates on 15th May, 1968—which I recall very well indeed—involved the anomalies created by seeking to pursue this sort of device. Some serious points were made in a moving speech by the late Iain Macleod. Those who were present will recall his excellent speech, when he talked about what might be described as families who had suffered a calamity. He mentioned a very serious point involving a thalidomide child who would suffer for the rest of his life, and that particular concession was made in the 1968 Act. When such a calamity occurs, the compensation goes to the parent and is rightly subject to aggregation.

The main anomaly the late Iain Macleod was putting to the Committee at that time was met, but even the examples he puts emphasise the difference between the two sides. He gave one example in which he instanced the sad death of a father, as the result of which the widow received £12,000 in compensation. He pointed to the difficulty that she might not being able to send her three children to Epsom College.

Mr. Kenneth Lewis (Rutland and Stamford)

The situation was not quite so simple. The difficulty was that the widow might not be able to continue to keep the children at Epsom College, which is a quite different matter.

Mr. Barnett

I hope the hon. Gentleman will follow my argument. The point I was making was that the particular case put by Iain Macleod was that in any case the children were at that time too young for school. The difference in the tax involved was some £200 or £300 and the upshot was that it would not be possible for her to send the children to college. That was the point the constituent was making in a letter to her Member of Parliament. However, we on this side of the Committee know of many worse cases involving parents who cannot even afford to pay for school meals for their children in primary schools, let alone to afford to send them to Epsom College. The fundamental difference between us is that hon. Gentlemen opposite consider it a serious anomaly that the tax system does not assist a parent to send his child to that sort of school.

These examples emphasise that the Conservative Party constantly seeks to make a case for tax avoidance. On that earlier occasion we were told about trusts and settlements being "caught" by the 1968 Act. Why not? Trusts are mainly set up for the purpose of digging a great hole in the estate duty Acts and in income tax and surtax legislation. There are, of course, other reasons why trusts are set up. There is no reason why people should not be able to continue to set up trusts if they wish to protect their beneficiaries to whom they intend to leave money, but why on earth should they also get tax relief? Why should we devise a tax system to enable them to get that sort of tax relief? There is no reason at all.

We then had other examples involving divorce, separation and maintenance claims. As the then Chief Secretary to the Treasury, now Lord Diamond, said at the time, the majority of these cases are settled in the magistrates' courts—indeed, five times the number as are settled elsewhere. In the great majority of cases, maintenance allowance is given to the wife. The only cases in which anomalies are created are those in which, in the higher courts, the two sides get together to obtain the maximum assistance from the tax system by giving some of the allowances to the children. Once more, this is what the Clause will now do. It will assist further tax avoidance.

But then we had cases presented to that Committee which were quite typical of the sort of examples I have in mind. They were presented very amusingly, as I am sure that hon. Members who were present at the time will recall, by a Member who was well loved in the House—he was not here all that long and we were all very sorry about that—John Smith, the then Member for the Cities of London and Westminster. He made a most remarkable contribution to the Committee. He set out some of the examples of the suffering there would be to people through the Clause of the 1968 Act, and he was most amusing because he spoke first of all, he said, about someone whom he knew best of all, namely himself. He said: I have five children and they, it so happens, are better off than I am…"— apparently he was a modest surtax payer— …because I have always earned a certain amount and my children's relations have always thought it more sensible to leave money to them, in case the breadwinner should be removed, rather than to leave it to me. To me they have always left the liabilities. He went on to say that he also had some land: I have some farms and some woodland where I do not live—just a patch of England which was left to me. It was wonderful. It was brilliantly done. Apparently the Clause would hurt him very severely.

The Financial Secretary to the Treasury (Mr. Patrick Jenkin)

With respect, from the very column from which the hon. Gentleman is quoting, I quote as follows: The Clause will have unexpected effects. It offers me considerable advantages.

Mr. Barnett

Also considerable disadvantages, which he did not mention, because the income of five children would be aggregated with his and he would be paying a considerable increased amount of tax. He forgot to mention that. However, I will come to other examples he quoted.

Mr. John Hall

What Mr. John Smith endeavoured to point out was that because of the operation of that particular Clause in the then Finance Bill, the improvements that he had in mind to carry out for the benefit of his children would not be carried out because to do so would be to penalise them. He was arguing that the Clause was preventing the improvement and the better use of land.

Mr. Barnett

I am taking this to be a typical example, because the type of cases presented to that Committee—apart from the compassionate cases referred to by the late Iain Macleod, which were met—[HON. MEMBERS: "Oh.]—yes, they were largely met—apart from generalisations by some hon. Members of the Committee, the only specific cases were of the type we had from John Smith.

7.15 p.m.

Mr. John Hall

I do not wish to keep interrupting the hon. Gentleman but as he has mentioned the case brought up by the late lain Macleod, and he mentioned specifically the letter he read from the widow who had had a fund of £12,000 set up, the hon. Gentleman has not pointed out that this fund was established by the previous husband's employers in order that the children should have the education that they would have had had the husband continued to live, and it was set up before the 1968 Act to give them that education. The widow then found that because of the operation of the Clause she was unable to do what her late husband would have been able to do.

Mr. Barnett

I am not denying that point. But the old law used the tax system to enable that to happen. That is the only point I was making.

To return to the other example, it was very well put and again was a typical case. I suppose that one could describe it as two people of Mr. Smith's acquaintance and, he thought, possibly the acquaintance of the then Chancellor, who both had substantial incomes: They were married, and their marriage broke up. It was clearly the husband's fault; he marched off with some beautiful creature leaving the wife and children and everything else. He marched off, and now he is a nonresident, living in Majorca. His wife is a resident of this country, has a house in this country, and has custody of the children, who also have large incomes. But she lives in Paris. This is not the sort of typical case that we on this side of the House have amongst our constituents. I venture to suggest that it is not exactly typical of constituents of any of the hon. Members that I see opposite. I cannot at present see the hon. Member for Cities of London and Westminster (Mr. Tugendhat), who now occupies the seat of John Smith. It is possible that all people living in the City of Westminster are of this type—although I live there, so it is not strictly true.

Mr. Sheldon

My hon. Friend is the exception.

Dr. Alan Glyn (Windsor)

The hon. Gentleman says that some people do not represent such constituents. I remind him that Mr. John Smith is now a constituent of mine.

Mr. Barnett

I am delighted to hear it. We all liked him. He then continued with another example of settlements. He said that he wished …to mention the case of a nobleman, who had an American mother. He is reasonably well off, but his children have a large American income. It will pay him handsomely to educate his children in Switzerland so that they are non-residents of this country and their income goes straight to Switzerland."—[OFFICIAL REPORT, Standing Committee A, 15th May 1968; c. 900, 903, 904.] It is perfectly true that that may well have been the case. But if these are the reasons and arguments advanced as to why we should have this form of tax avoidance, it is a very weak case for creating a tax system which allows taxpayers to dig that sort of hole in it to enable them to avoid taxation at the expense of the majority of other taxpayers.

We then have the general case about the public schools. To my surprise, I confess, it appears that my right hon. Friend the then Chief Secretary had not realised the devastating effect that the 1968 Act, and this particular Clause, would have on public schools. When he heard, as he was told constantly throughout the Committee stage, that, for example, a widow had to take her children away from a public school because the grandfather was no longer able to continue paying, he said that that was not what he was thinking of anyway.

I repeat, I have no objection to a grandfather paying for his grandchildren's schooling. What I object to is that the rest of the taxpayers should be paying for his grandchildren's schooling. I do not blame him for using the system. I blame hon. Gentlemen opposite for reintroducing that system and perpetuating the distortion. If the argument is that grandfathers who help to send grandchildren to public schools save the State money, the Government should be perfectly honest and give a straight subsidy to allow them to go to those schools. The Government should not distort the tax system to do so.

My case is not about public schools. I happen to believe that parents should not be able to buy what they consider to be privilege. But I do not want to stop that through the tax system. What I do not want to do is to allow parents to use the tax system to buy what they believe to be a privilege through sending grandchildren, and, in effect, assisting their children to send children, to public schools. While the public school system is available, at least we should not have a tax system whereby all the rest of us subsidise those who send their children and grandchildren to those schools.

My conclusion is that clearly the Clause is a movement away from equity, not just to a passive tax system but to a system of positive encouragement of the avoidance of taxation. The Clause is a tax avoider's charter, and I hope that we shall all vote against it tonight.

[Miss HARVIE ANDERSON in the Chair.]

Mr. Kenneth Baker (St. Marylebone)

When the late Iain Macleod moved the Amendments tabled by this side in Committee in 1968, he said that Clause 15 of the 1968 Bill, which introduced the aggregation of children's investment income, was possibly the most important Clause in the Bill.

The hon. Member for Heywood and Royton (Mr. Barnett) has underestimated the number and types of family caught by this provision. He implied that the great majority of cases involved families where grandparents wanted to pay for their grandchildren's education, and they used the device of by-passing their parents. But, as was pointed out in Committee three years ago, there were all sorts of anomaly, to which the hon. Gentleman referred again tonight and skated over rather smoothly.

The hon. Gentleman will remember that in the three or four long days in Committee just before the Guillotine fell in 1968, the Government side, led by Jack Diamond, did not accept a single one of our Amendments. In Committee, they did not even accept the case for the thalidomide child or the physically handicapped child. In fact, in Committee the hon. Member for Heywood and Royton, the hon. and learned Member for Lincoln (Mr. Taverne) and the hon. Member for Woolwich, West (Mr. Hamling) all voted against our Amendment which was designed to help thalidomide children.

Many other hardship cases have been caught in the last two or three years—

Mr. Dick Taverne (Lincoln)

Will the hon. Gentleman accept this correction? It was made clear by Lord Diamond that he would himself move an Amendment on this matter, and he did.

Mr. Baker

With respect to the hon. and learned Gentleman, we were prepared, and fain Macleod offered, to have a separate vote on what was called "little (c)", which was the paragraph concerned with thalidomide children. That was rejected, and we were given no worthwhile undertaking. It was only the late conversion of the Government to our ideas that saved the day.

Many other anomalies were not covered by the then Government. We had in mind the sort of family where the breadwinner is killed in an accident and the compensation or insurance funds resulting from the death are invested, with the money from the investment not being given to the wife but to the children. I know of cases in my constituency where this has happened, and it is a rather more common feature than the hon. Member for Heywood and Royton thinks. That sort of case is not excluded and was covered by Clause 15 of the 1968 Bill. Similarly, children who receive incomes as a result of court settlements are included. They are by no means the small number referred to by the hon. Gentleman. Those were the cases that were not met by the legislation, and I am pleased that the Government are repealing it in their first Budget.

I am surprised that the Liberal Party has decided to join the Opposition. As I understand it, the effect of the Amendment in the name of the hon. Member for Cornwall, North (Mr. Pardoe) is to eliminate the whole of Clause 10, which lines up the Liberal Party with the Labour Party on this matter. In 1968, the Liberal spokesman was not so aligned. Dick Wainwright made some very eloquent speeches supporting my right hon. and han. Friends and the arguments that we put forward. So, if there has been a change of heart on the part of the Liberal Party, I shall be pleased to know the reasons. In economic matters, the Liberal Party misses Dick Wainwright.

Mr. John Pardoe (Cornwall, North)

I am not sure to whom the hon. Gentleman is referring when he speaks of Dick Wainwright. I have never heard of anyone of that name. Mr. Richard Wainwright has never been called "Dick" by even his closest friends, of whom the hon. Gentleman was not one.

Mr. Baker

He was called "Dick". I would never describe myself as one of his closest friends, but he was known to us as "Dick". He certainly supported us in Committee, and I should like to know whether the Liberal Party has changed its views, and, if it has, why it has.

The investment income covered by this Clause is wider than that referred to by the hon. Member for Heywood and Royton. This is not a point that I make. It was made by the hon. Member for Birmingham, All Saints (Mr. Brian Walden) in Committee.

The yield of aggregating children's investment income with that of their parents was about £25 million, and it emerged during the course of the debate in 1968 that about half, £12½ million, came from the first children's allowance of £115 being disallowed. This is somewhat technical, but it means that part of the yield of the Clause came from people whose parents were not remotely in the surtax class, and this point was made repeatedly in Committee.

The hon. Member for Heywood and Royton said that the basic principle behind their Clause was tax equity, that it is the family spending unit which must be taxed. This was an ingenious device almost invented, but not quite, by John Diamond—"Jack" to his friends. The family spending unit was to include only the mother, the father and the children. It did not include, for instance, any grandparent living with the family, or uncles or cousins who were dependants of the family. That obviously makes nonsense of the argument that there is equity in this. Why should a family spending unit consist just of parents and children? Why not include other dependent relatives? Why is not their income added? Why is not the income of possibly an elderly aunt or a grandparent added in and aggregated? That was the first basic anomaly in the Labour Government's case.

The second anomaly was the distinction in the family spending unit between earned and unearned income. If the income were unearned, it was aggregated. If it were earned income, it was not aggregated. The only principle, as Iain Macleod pointed out, was that earned income is sacred and unearned income is profane. That was the only distinction made by the then Government.

There is nothing meritorious or viable in the principle of the aggregation of income. The only incomes to be aggregated since the beginning of the income tax system are those of husbands and wives, and I am glad that the Government have decided to do away with that system in their first Budget. It seems to me that each individual should be treated as an earner or recipient of income in his or her own right.

I do not believe that there is any principle in the Opposition's case in opposing the Clause. The mantle of Lord Diamond has fallen upon the hon. Member for Heywood and Royton. Just as Lord Diamond was put up in 1968 to try to justify confiscation in the garb of social justice, so has the hon. Member for Heywood and Royton been today. That in fact is what it was, and it was seen to be that. Probably two-thirds of the yield of the Clause came from people who were not in the surtax class at all. I hope that my hon. Friend the Financial Secretary will be able to confirm that.

This reform will not take effect until 1972–73. I should like to know why. I do not see why it cannot be introduced in 1971–72. However, I congratulate the Government on taking this step. One of our pledges in 1968 was that we would repeal this provision, because it was so grossly unfair. It hit many families at a time when they had been hit by the loss of the breadwinner or some other misfortune. I am pleased that the Government have decided to deal with the matter in this way in their first Budget.

7.30 p.m.

Mr. Denzil Davies (Llanelly)

The hon. Member for St. Marylebone (Mr. Kenneth Baker) has alluded to one of the arguments which we occasionally hear in favour of disaggregating this income—namely, that disaggregation accords with some major principle of taxation in that one should never, or hardly ever, treat the family as one taxable unit. I submit that there is no such principle in income tax legislation.

The hon. Gentleman mentioned one instance where the income of an infant is aggregated with that of his parent where the parent is the settlor of the infant's settlement. That is a major exception to any principle of this kind which may exist.

Even this Government have not carried their theories to the extreme by proposing that the unearned income of a wife should be treated separately from the income of her husband. So there is no clear principle to the extent that there should not be any aggregation relating to a family unit. If such a principle existed, I submit that it would not cover the present situation.

We are not concerned, as hon. Gentlemen seem to suggest, with income which the infant receives; we are concerned with income which hardly ever finds its way into the hands of the infant. The total amount of taxation raised by the aggregation provisions amounted to about £15 million. The income might even be £20 million to £30 million. That kind of income does not find its way into the hands of infants. Indeed, only a small proportion gets into the hands of infants. Most of it is applied for the benefit of the infant, and often by trustees under the strict and specific provisions of a deed of covenant or a trust instrument.

We are not talking about the spendable income of an infant, but income applied for the infant's benefit. Not only does the infant rarely see most of the income or have control over its application, but often the person who has control over its application is the infant's father acting in his capacity as a kind of family trustee. He decides how the income is to be spent within the terms of the trust; he decides what is for the infant's benefit. In most cases the infant is never consulted.

If we suppose that the bulk of the income which is aggregated in the present provisions is spendable income of the infant to do with what he likes, then we ignore the reality of the situation. This is the income of the family. In most cases it is applied not only for the benefit of the child, but for the direct benefit of the whole family. Since this is the income of the family it is therefore right and equitable that it should be taxed as the income of the parents.

No one supposes that the real reason that Clause 10 is introduced is because of certain anomalies relating to compensation payments or cases where unfortunately a parent may die and payments are made in settlement to an infant; nor is the real reason some metaphysical misgivings by the Government about taxing the income of one person as the income of another. The real reason, as hon. Members on this side know, is simpler and cruder. We know that if the Clause becomes law most of the unearned income which will be freed from aggregation will again find its way into the bursaries of the public schools. With a wealthy grandfather as a bountiful settlor, with a father as a convenient trustee, and an unconsulted infant, the way will again be open for those cosy little family arrangements whereby a child can be expensively educated with the minimum expense to his parents. If the law introduced by my right hon. Friend is not to be changed, it may prove impossible, in these inflationary times, to pay the school fees and little Johnny might have to go to the local secondary modern school and then stand on his own feet.

Prior to the election a solemn and binding covenant was made between the Tory Party and its rich supporters that the £15 million a year tax arising from these aggregation provisions would be returned to them. We are told that the party opposite always keeps its election promises. It certainly keeps those promises which it makes to the rich. It is not so particular about promises relating to the reduction of prices or the reduction of unemployment—[An HON. MEMBER: "Or family allowances."]—or family allowances—because the rich, in the main, are well insulated against both those evils.

If a promise to return the £15 million had not been made, I suggest that Lord Carrington would have returned a little less laden from his pre-electoral perambulations in the City and the board rooms of this country. It would not have benefited the party opposite much if the prospectus which the noble Lord was hawking around the City had failed to contain a clause to that effect. It would not have been much use if the prospectus stated that the £15 million would be aggregated with the miserly £8 million which the Government are proposing to give under the family income supplement provisions.

The number of subscribers to that prospectus would have been small and the subscriptions would also have been small if it had contained a clause to the effect that the £15 million was to be used to see that no infant was to be denied free school milk or to go without a proper school dinner. After all, those who subscribe to the party opposite do not invest their money on the basis of such worthless and irrelevant consideration. I suggest that many company directors or chairmen were enthusiastically prepared to dig deep into the pockets of their shareholders at the thought that, with the return of a Conservative Government, the burden of school fees might again be lifted from their shoulders.

Hon. Gentlemen opposite never tire of proclaiming, especially at election time, that whereas they do not naturally believe in equality, they believe in equality of opportunity, although they never explain how it is possible to achieve one without the other. If hon. Gentlemen are sincere in these pronouncements about equality of opportunity let them show their sincerity by voting against a Clause the main effect of which will be to preserve the existing inequalities of opportunity in our society. Let them insist that the sums raised in taxation as a result of the aggregation provisions be used to reduce the gap between the facilities provided for those educated privately and for those educated under the State system.

If hon. Gentlemen do not have the courage to act in that way, if they do not have the courage to insist upon this, I suggest that they are demonstrating yet again that all their pronouncements about inequality and equality of opportunity are merely electoral slogans, that the Tory Party is still the party of the privileged and the wealthy, and that all those pious protestations of Tory Prime Ministers about the need to create one nation are not only devoid of originality, but, far worse, are totally devoid of sincerity.

Mr. David Waddington (Nelson and Colne)

I am disappointed, but not surprised, that so early in this debate about a taxation change we have heard an attack on the public school system, and an attack on the right of parents to arrange their affairs so as to enable them to send their children to public schools. It is an illustration of how far values have been distorted by the antics of hon. Gentlemen opposite over recent years that, when statements of that sort are made, they are not greeted by gales of derisive laughter, because it is a shocking affair that time after time attacks like that are made by hon. Gentlemen opposite, who really seem to believe that it is grossly anti-social for parents to wish to educate their children at their expense, and yet there is nothing anti-social—

Mr. Alexander W. Lyon (York)

rose—

Mr. Waddington

I shall give way in a moment. As I was saying, hon. Gentlemen opposite think that it is grossly antisocial for parents to wish to educate their children at their own expense, but that there is nothing anti-social in the same people squandering all the family savings on expensive holidays abroad. I should have thought that the family that preferred to see its children educated properly was acting very much more responsibly, and it is grossly unfair, and shows a strange set of values, to describe families who behave in that manner as antisocial, rather than being aware of their responsibilities.

To come to the whole question of the aggregation of children's incomes with the incomes of their parents, it is worth going back to the Budget Statement in 1968, when the then Chancellor of the Exchequer said: Our tax system has always treated the income of husband and wife as one, on the basis that they are a single spending unit. Logically the unit for tax purposes ought to include children as well as husband and wife, for the children's income, just as much as the parents', is available for the family and is reflected in its living standards."—[OFFICIAL REPORT, 19th March, 1968; Vol. 761, c. 292.] That was the justification put forward by the then Chancellor for changing the law, and in fact it was the only justification that he put forward for the change.

As one of my hon. Friends said, if that argument has any validity at all, it is as much an argument for aggregating earned income as for aggregating unearned income. A husband's and wife's earned incomes are aggregated, and if the unit should include children then, logically, the children's earned income ought to be aggregated. But, if the Chancellor had aggregated children's earned income, there would have been the devil of an outcry from hon. Gentlemen opposite, and rightly so. It is impossible to find any logic whatsoever in the then Chancellor's expressed reason for bringing in this change in the 1968 Budget.

I detest the term "unearned income", and I regret that it has not been possible, in this Budget, to abolish entirely the distinction between earned and what is now called investment income. As has been said on many occasions, but it needs saying again because hon. Gentlemen opposite seem to be blithely unaware of it, the source of investment income has always been severely taxed in one way or another, either through income tax or capital gains tax if it has been earned and saved, or through estate duty if it has been inherited.

The Government would have been wrong if they had allowed this offending Section of the 1968 Act to stand, and allowed yet another form of discrimination against investment income to become a permanency in our tax system. We know only too well that when these changes are made they become part of the law of the land. They remain part of the law of the land for a year or two, and then become holy writ, and nobody then thinks that it is possible to go back to the situation that existed before the change was made.

7.45 p.m.

I think that there is great significance in the fact that the Opposition are not seeking to delete subsection (1)(b). They could hardly suggest that now that the age of majority has been lowered to 18 there is still a case for treating the income of a person over 18 as the income of his parents, for to do so would be to fly in the face of the recommendations of the Latey Report, and the Family Law Reform Act which provides that for all other purposes infancy ceases at the age of 18.

I shall be interested to hear the views of the Members of the Liberal Party, because I understand that they have put down an Amendment, the effect of which would be to delete the whole Clause. It shows how much thought Members of the Liberal Party have given to this matter, when they are stupid enough to put down an Amendment which would have the effect of aggregating the income of a child with the income of his parents when that child was over the age of majority if the income of the child came from a trust set up by his parents, yet apparently that is the attitude of the Liberal Party to this all-important Clause, provided, of course, that they realised what they were doing when they put down an Amendment to delete the whole Clause.

Members of the Labour Party have nothing to be proud of because, in their last Budget, and after the Family Law Reform Act had become law, they refused to put right an obvious injustice. It does not say much for their protestations that they are on the side of equity today that, after the Family Law Reform Act had become the law of the land, and after the Latey Report had recommended that infancy should cease at 18, for fiscal purposes as well as for all other purposes, and bearing in mind that they are always telling us that they are in pursuit of equity, that they went out of their way to say that although a child ceased to be an infant for all other purposes at the age of 18, they jolly well were not going to have children ceasing to be children at 18 for fiscal purposes, and they aggregated the income of the child with that of his parents. I therefore find it difficult to accept what they say when they talk about equity. We did not see much equity when they were in office.

Mr. Alexander W. Lyon

The hon. Gentleman is making a false point. The question of children attaining the age of 18, and therefore being adults for all purposes is wrong, because, in relation to scholarship income, and in relation to maintenance grants at universities, they are frequently treated as infants until they reach the age of 25, in the sense that, even though married, they are not treated as being fully adult. They are still treated as being dependent upon their parents.

Mr. Waddington

I am sure that the hon. Gentleman has read the Latey Report and knows that it was a unanimous recommendation that, for fiscal purposes, infancy should end at 18. That is my point. All I am saying is that hon. Gentlemen opposite, who talk about equity, went out of their way to fly in the face of the recommendations of the Latey Report and, in order to follow this so-called principle of the family unit, were prepared to say that it was right for a child to cease to be a child at 18 for all purposes, but not for fiscal purposes. That is the point that I am making.

Mr. Norman Buchan (Renfrew, West)

It is not very frequently that I intervene in debates on the Finance Bill, but today I have been strongly tempted to take part, and, after hearing the speeches of hon. Gentlemen opposite, I am even more tempted to do so.

I am reminded that the last speaker represents Nelson and Colne. We have fond memories of a former Member for that constituency, who fought for equity and equality of opportunity all his life. I do not know what he would have made of the hon. and learned Gentleman's speech. I sometimes think that hon. Gentlemen opposite carry a kind of psychological miasma of devotion to their old school, which passes all understanding. We can touch on all sorts of things on this side, but once it impinges on the public school, their hackles rise. It is extraordinary. It goes even further than their devotion to their marital status. They are more anxious about what might happen to the public schools than about the problem of aggregation or disaggregation between husband and wife. It is on this kind of basis that the arguments about equality and opportunity are put forward.

The hon. Member said that we are worried because people might wish to educate their children at their own expense. With respect, this is not the problem. We object to hon. Members opposite, and the people who helped to finance their political campaign, and the people to whom their promises were given in the election prospectus, financing their children's privileged education at other people's expense. This is the essence of the argument. The argument is not being put forward that we are in favour a banning public schools. Perhaps it should be, but that is not the argument. The argument is that we should give them tax relief, that we should help to pay for these schools—[An HON. MEMBER: "No."] That is, precisely, and in detail, the argument.

Mr. Patrick Jenkin

I think that the hon. Gentleman was a member of the Government when the 1968 Clause was introduced. Is he now saying that the intention then was to strike at the payment of fees for private education?

Mr. Buchan

No, that is not what I am saying. As I said, they react strongly: as soon as one mentioned the phrase "public schools", reason flies out of the window. I was dealing precisely and in terms with the arguments of the hon. and learned Member for Nelson and Colne (Mr. Waddington), who said that our views are biassed because we thought it wrong that people should educate children at their own expense. What I was saying was that my objection to his attitude and to the argument based upon education which he raised was that I do object to their educating children at other people's expense. But I have not yet got on to the proposition of the Amendment. I was dealing purely with this point.

Mr. Waddington

It was a point which I had no intention of raising. The question of the public schools was raised by the hon. Member for Llanelly (Mr. Denzil Davies). I rose, feeling a little indignant, and pointed out that I was disappointed but not surprised that hon. Members opposite were prepared to turn a debate on the Budget change into an attack on the public schools.

Mr. Buchan

Everything which has been said proves that, as soon as one mentions public schools, they react. The hon. Gentleman now says that he had no intention of raising this, but this was the whole kernel of his speech—

Mr. Patrick Jenkin

rose—

Mr. Buchan

You see?

Mr. Jenkin

It is just that I want to get it absolutely clear what case is being made which I shall have to answer. I may have phrased my earlier question wrongly, but the hon. Gentleman was a member of the Government at the time when the 1968 Finance Bill was introduced. Is he saying that the reason for the introduction of that Clause, to quote his own words just now, was "to prevent the financing of education at other people's expense"? Is that his case?

Mr. Buchan

The hon. Member is wrong again. I did not say anything of the sort—

Mr. Jerry Wiggin (Weston-super-Mare)

Yes, you did.

Mr. Buchan

I was dealing with the argument of the hon. and learned Member for Nelson and Colne; I will come to my own point in a moment. We see how they argue for these backwoods arguments: the Treasury Bench backs the defence of the public schools.

I did not say that there was any objection to people paying for their own children's education but only to other people financing that education. As to whether it was introduced for this reason, of course it was not—[Interruption.] It is a matter of equality. This is why it was done. This is why the two things which worry them are making this distinction on the schools aspect and their fear—this is what the hon. Member's argument verged on—about unearned income. This is why we did it and why, in three or four years, I hope, we shall be quick to do it again.

I turn now to the curious case of the "little old lady of Giggleswick" syndrome. In other words, every time an important piece of social legislation is brought forward, there is a little old lady with a string bag in Giggleswick, and because she might be harmed by it, the whole of the legislation has to stop. If a measure is brought in to deal with the rich surtax payer, somehow there is a provision which might affect this little old lady, so it cannot be done. This is the argument which we have heard today.

The hon. Member for St. Marylebone (Mr. Kenneth Baker) based his argument on two cases. Always we hear about the individual case, and today we heard about the poor widow and the thalidomide child. But this is not what this legislation says. It does not bring in the problem of disaggregation in the case of the thalidomide child or even in the case of the poor widow. Hon. Members opposite know perfectly well what they are doing. They are doing this to find the means of using covenants, deeds, trustees of one kind or another—

Mr. Douglas

For tax avoidance.

Mr. Buchan

This is precisely what it is. It is to save the richer taxpayers £15 million. I believe that it might even be more. But to give some idea of the cost, I would point out that the family income supplement which they put forward with great pride—I watched the programme on television—came to £7 million, or less than half what they will save the rich taxpayer by this mean little action. That in itself is so mean. It is a repetition of the Speenhamland system introduced in the 1790s. But when that finished, about 1830, it was costing the revenue £8 million. So, after a century and 40 years, they have actually succeeded in reducing the amount which was being paid then. That is the meanness of it.

This provision relates to a family income, not to that of the child. Even the arguments about the thalidomide child and the problem of the widow show that this is a family concept. It is in their interests that this reactionary Government want to restore even further elements of concession to the rich taxpayer. It is for this reason that we object to it.

We do believe in equality on this side of the Committee. Our great regret was not that we introduced measures like this, but that we did not succeed in going further with redistribution. There has been plenty of redistribution by the Tories, but the other way round—in favour of the rich and from the poor. What a distortion—[Laughter.] They are laughing. Is this not so? Is not this £15 million, like a whole number of their other measures, quite crisply and directly moving money from the poor taxpayers to the rich taxpayers?

This is precisely what the Budget does. It was boasted about. This is what they are in favour of—giving opportunities to break through and so on. As I have said before, we have the first Government for over a century who have deliberately turned the clock back in this sphere. They have used even the most progressive element in our taxation, that is, direct taxation, as an element of redistribution. This is not an argument against it, but this is the effect of it, just as I believe that the purpose of this disaggregation is in many cases to secure the buying of educational privilege. Our basic opposition is the lack of equity which this introduces.

A lot was said yesterday about floating the £. This Government are floating the economy by releasing money in the hope that it will achieve their ends. Whatever their policies achieve, they will not achieve equity.

8.0 p.m.

I have always thought it a curious defence for any party to say, when in office, that it gave a pledge at the time of the previous election. Before any pledge is honoured it should be carefully discussed to find out whether it is a good or bad pledge. What is the point of honouring a bad pledge? Certainly none of the other pledges implemented by the Government has resulted in more equity for society. We have witnessed two Conservative Budgets, and both have introduced the element of redistributing income from the poor to the rich.

It is in education that I feel particularly strongly about this lack of equity. This is a question not just of the redistribution of money, but of allowing the buying of privilege at the expense of others, and this is all bound up with our social fabric.

Consider, for example, in this context, the City of Edinburgh and its secondary schools. About 23 per cent. of the first-year pupils attend fee-paying schools. When we move to the fourth year, we find that 40 per cent. of children are in fee-paying schools. In the fifth year—this is equivalent to the English sixth form and is the stage at which the equivalent of the G.C.E. is taken and university entrance examinations are sat—60 per cent. of Edinburgh's pupils are in fee-paying schools.

This is an indictment of the policies of hon. Gentlemen opposite, because this state of affairs is drawing away from State schools staff and resources who are going to the fee-paying sector. Such a small "top" is being created at State schools that the right variety of courses cannot be given. Inequity is the result and, as I said, this has a strong bearing on the very fabric of society. We are speaking of a great number of cases and not about some little old lady from Giggleswick.

Mr. Waddington

The hon. Gentleman has said more than once that children are being educated at somebody else's expense. If a grandparent pays for his grandchild to attend a fee-paying school—that is, at the expense of that grandparent—how is the child being educated at somebody else's expense?

Mr. Buchan

The hon. Gentleman should read the Bill or ask one of his Treasury Ministers what this is all about. The grandfather is paying for the child, but the aggregation which is introduced to defray the cost means that it is being done at the expense of others. In other words, we are dealing not simply with the grandfather who pays the fees, but with the aggregation that results from his paying the fees.

Mr. Kenneth Baker

Does the hon. Gentleman recall the case mentioned by the late lain Macleod in a letter three years ago about a specific family of three children? The breadwinner had been killed in an accident and the firm which had employed him had established a fund of £12,000 for the three children. The income on that fund would probably yield about £500 a year, but spread over the three children it would not have amounted to much more than £150 each. Is the hon. Gentleman saying that that sum must provide for their education and that nothing else must be done? There are many cases of that kind—this has nothing to do with the little old lady from Giggleswick—which were brought into taxation by the legislation of the Labour Government.

Mr. Buchan

I am not certain about that case and I will have to look at it more closely. My only comment is that if the Government had that kind of case in mind, they should have spelt it out.

Mr. John Hall

I accept that I have made a number of interventions. Indeed, there was a time when I felt that I might have been interrupting a private conversation. However, I am glad of this opportunity to make a few comments in my own right.

When debating a matter of this kind, it is inevitable that we will have speeches like the one made by the hon. Member for Renfrew, West (Mr. Buchan), who seems to think that my hon. Friends are obsessed with the problems of public schools and that we resent any attack made on them. Is he aware that until the question of fee-paying schools was raised from the benches opposite, my hon. Friends had not even referred to public schools? I suggest that the obsession with this issue exists on the benches opposite.

If it is any comfort to the hon. Gentleman, he may care to know that it is not necessary for an income to be settled on a child, by a grandfather or parent, to be able to find ways and means of putting aside sums to pay for the child's education. I will not weary hon. Members by going into them.

In the case that was debated at considerable length when the Finance Act, 1968, was proceeding through the House, many examples were given, not only by the late Iain Macleod but by other hon. Members, bearing no relation whatever to the payment of fees for education. For example, I put forward two cases that had come to my notice from my constituency.

One was the case of a man who had married a widow who had a large family, the children having had incomes settled on them. They had become liable, though the man was of modest means, to pay tax on the aggregated income, although that man had no control over the incomes of the children.

The second case was of a daughter who was in conflict with her parents. I was asked to intervene in the family row, which I did—a dangerous thing for anyone to do—and her grandfather supported her in a desire to take a particular training course. He provided the money, against her parent's wishes, and the parent found that the income which the grandfather had settled on the girl was aggregated with his and that he had to pay tax on it. They were two cases among many which were adduced in Committee upstairs on the Finance Act, 1968.

The trouble with that sort of fiscal measure was that it was not only designed to give effect to the philosophy that had been advanced by the then Chief Secretary, now Lord Diamond—that the family should be treated as one unit—but was designed, as are so many fiscal Measures, to catch the tax evader.

Our tax law is full of complicated Statutes designed to catch the few who evade paying tax, often in a large way, and in so doing the law penalises the vast majority of people who are dealing with their tax affairs in a decent manner. I have no doubt that people have abused the privilege which enabled them to settle money on their children, but to catch them we have passed laws which have resulted in many people, both parents and children, being penalised.

There are three good reasons why we should reject the Amendment. First, at the conclusion of the Committee deliberations on the 1968 Act the late Iain Macleod, who had been genuinely moved by what he thought was the injustice of the matter, pledged the Conservative Party to repeal that piece of legislation when we were in a position to do so.

The second reason is that we made clear both before and at the election precisely what we should do. The hon. Member for Renfrew, West said that the making of a pledge was itself no reason why one should carry it out; it may or may not be a good pledge. I can understand his taking that view, but it is not a view which we share on this side.

Mr. Buchan

Is the obverse true, then, that, if one has made a bad pledge, one should carry that out? Is that what the hon. Gentleman is saying?

Mr. Hall

Generally speaking, if we make pledges, there are good reasons. We regard this as a good pledge. I do not claim that there is any virtue in consistency as such, or that one should always carry on doing the same things. Obviously, if what one proposes to do at one stage turns out later to be wrong, one will not want to do it. But we have given many good pledges, this is one such, and we ought to honour it.

I shall not bore the Committee now, but I can think of many instances when the present rule has acted harshly. If hon. Members wish to look into the case histories, they will find them in the proceedings on the Finance Bill in 1968, and in 1969 when further provisions and Amendments on similar lines were discussed.

It is wrong to introduce legislation designed to catch the few which penalises the many. Yet it has often happened, and this is only one example of the unfortunate effects of our fiscal legislation The Government are wholly right in introducing this Clause. Those hon. Members who would delete paragraph (a) are misguided in their opposition, believing that the Labour Government's measure was meant for purposes quite other than those for which it was really intended.

Hon. Members opposite are obsessed with the idea that the whole purpose of such Clauses as this is to finance public school education. From my own experience and the cases brought to me from time to time by constituents who have been penalised, I can assure them that that is far from the truth. I ask them to accept that from me. There may be all sorts of reasons why they want to vote against the Clause, but that should not be one of them.

Mr. Dalyell

We have heard from the Government side various sad stories of separated women, women in trouble, widows and so on, who have peculiarly hard problems to face. I was responsible for bringing in a Bill to deal with alimony and maintenance orders. I shall not go into the details of that Bill, but I have recently had an enormous amount of correspondence from women in difficulties because maintenance orders made in their favour by the courts have not been implemented.

Mr. William Hamling (Woolwich, West)

And who blocked that Bill?

Mr. Dalyell

When one receives that kind of correspondence, one realises the acute poverty—not tax disadvantage or tax unfairness, but real poverty—which these women suffer. That others should be subsidised out of the public Exchequer when there are women in real need of that kind is, to me, absolutely intolerable. The hard cases of which we have been told by hon. Members opposite are somewhat bogus. I go along with much of what lay behind the memorable phrase used by my hon. Friend the Member for Renfrew, West (Mr. Buchan) when he spoke of the little old woman in Giggleswick. Anyone who has received letters of the kind which I have had on the subject of alimony and the like in the past three months must feel that some of the arguments and stories told by hon. Members opposite are pretty strange and out of perspective.

What is more, a Clause of this kind poisons the whole idea of fairness between one citizen and another. It creates an atmosphere in which many people feel that others are getting something for nothing. This is intolerable. I endorse what was said by my lion. Friend the Member for Heywood and Royton (Mr. Barnett). This is a positive act of subsidy by those who can less easily afford it to those who, almost certainly, are in a higher income group. It is turning redistribution in the wrong direction.

8.15 p.m.

It poisons the whole atmosphere because there are a good many people, decent people, who do not want to do what the Government are allowing. Nevertheless, they feel—I suspect that there are quite a number in Conservative associations throughout the country —that, if they do not do it, they will be letting their families down. Loyalty to the family is in conflict with what many people regard as right, and there are, I am sure, many fairly well-to-do people who, in themselves, wish that the law were slightly different. There are many decent people, of all political parties and none, who do not like the business of having to mess around with lawyers, under family pressure, to make arrangements of this kind. Hon. Members opposite know that there is a good deal of truth in what I say.

The Clause leads, therefore, to a deep feeling of corruption in our tax system. On grounds of principle, I regard it as bad.

Mr. Patrick Jenkin

May we have this point right? Is the hon. Gentleman suggesting that one of the purposes of Section 1:5 in 1968 was to place an obstacle in the way of grandfather covenants because, basically, grandfathers did not really want to do it and, therefore, they ought to like the Amendment?

Mr. Dalyell

No. I am making a rather deeper point. There are a lot of decent people—I do not say that they are the majority—who do not like this fiddling around with the tax system and who would rather have a straight tax system than a devious one.

Mr. Peter Rees (Dover)

We have heard some highly charged language from the hon. Member for West Lothian (Mr. Dalyell). Perhaps naïvely, I was surprised, until I heard their speeches, that hon. Members opposite wished to have this Amendment taken on the Floor of the House. I imagined that they would prefer it to be discussed in the decent obscurity of the Standing Committee. The Amendment is designed to perpetuate a shabby little measure introduced in the Budget of the right hon. Member for Birmingham, Stechford (Mr. Roy Jenkins) in 1968, and I am sorry that the right hon. Gentleman is not here to see its interment.

I had always been led to believe that the right hon. Member for Stechford represented the fine flower of Balliol, but the Finance Bills which he introduced were reminiscent not of Lord Oxford and Asquith, but of Lloyd George in his Limehouse moods. Perhaps he regards measures of the kind which we are now discussing as mere vulgar detail which he prefers to leave to his hon. and learned Friend the Member for Lincoln (Mr. Taverne). If that be so—I am glad to see the hon. and learned Gentleman here—perhaps we may be told the thinking behind it. We shall look forward with interest to the deep thinking of the Institute of Fiscal Studies, though I hope that it will not on the same lines.

The most sophisticated argument which we have yet heard in support of the Amendment and the original provision in the 1968 Act is that the family is a single spending unit and should be taxed as such. Hon. Members will be aware that the concept of the undivided Hindu family obtains in the Indian fiscal system. We should not be too proud to learn from the fiscal systems of the Orient when they have something to teach us. But, if we are to adopt the concept that the family should be treated as one, we must not be selective in the measures we take to advance it.

If the family is to be regarded as one unit, there should be no capital gains tax charged when, say, a father gives part of his property to his son. It is moving inside the family unit, which is one unit, so fair is fair. Again, if the head of the family gives or bequeaths part of his property within the family, why should estate duty be charged? It remains within the continuing unit. Why estate duty at all in such circumstances? I, therefore, regard that as a specious argument which does not take us far.

I detect that the basis for the Amendment and the original provision is an obsession with tax avoidance. The hon. Member for Heywood and Royton (Mr. Barnett) disclaimed any obsession with tax avoidance, but his disclaimer did not ring true. If we have a system of very high tax rates such as we have had—this is the first Budget since 1962, I think, which has made an attempt to bring them down—we will inevitably, in proportion, have tax avoidance.

We must face these facts of human nature—people will not willingly part with their income to the Exchequer when they feel in their heart of hearts that the tax system is at an unfair rate. Many people, of all political parties, feel that tax rates are far too high. So I detect that the true basis of the Amendment is the obsession of Labour hon. Members with tax avoidance.

Here I pause to analyse the three sources from which the child may have a separate income of his own. Here I should perhaps make a personal statement. In all three categories there are examples in my own family, but I hope that Labour hon. Members will accept that I am not arguing against the Amendment because to do so may advantage members of my own family.

The first source of income is settlements. I concede that many settlements nowadays are executed for tax avoidance reasons, but let us distinguish between tax avoidance and tax evasion.

Mr. Michael McGuire (Ince)

The P.A.Y.E. man knows the difference.

Mr. Rees

I have known P.A.Y.E. men who have both avoided and evaded tax. Many people paying P.A.Y.E. have second jobs in the evening and do not disclose their incomes from them. I find it difficult to discourage them, because it is probably the only way in which we can get that extra little bit of work out of them. Let us not pretend that tax evasion or avoidance is confined to any particular social or economic class. It is rife throughout the country, because we have a high-rate tax system, and Labour hon. Members must face up to this.

Not all settlements are entered into for tax avoidance reasons. There are innocent settlements. Some have been running for many years, since before the war. There are cases falling into that category which are not tax avoidance situations.

There are also sources deriving from divorce or separation. One hon. Member opposite suggested that it was perhaps an abuse of the tax system to tell the courts, "We want this maintenance paid direct to the child", because up to 1968 it would be taxed as the child's income. I regard that as a perfectly legitimate exercise, and I feel that most objective people will accept that too.

It is not right to say that it is only the richer classes who can take advantage of that because the poorer classes will have to go to the magistrates' courts, and that therefore perhaps that kind of solution is not open to them. But those who go to the magistrates' courts are probably not paying tax anyway, so I do not regard that as a very fair comparison.

Mr. McGuire

I mentioned the P.A.Y.E. man just now, and I apologise for having done so from a sedentary position. The hon. and learned Gentleman will be aware that the head of the Civil Service Inland Revenue union or association has said that the P.A.Y.E. man contributes little to the massive tax evasion which goes on, and which is illegal, and has very little opportunity for tax avoidance. That was said by a man who knows more about the question than most of us in the Committee.

Mr. Rees

By definition, he probably does not know too much about the actual figures of evasion, though he may suspect. But I will match his experience with mine. I know very many P.A.Y.E. people who are evading tax. Does any hon. Member honestly believe that even half the charladies of London are declaring their earnings? I doubt it. I do not blame them, because there is no incentive to go to work when there are high tax rates. The Government are dedicated to alter that situation. People will operate within a fair tax system. With a tax system that they do not think to be fair, they will try to operate outside it. The more sophisticated, richer people will take advice and go in for avoidance. Those who do not have access to such advice will operate outside it, and it will become evasion. That is the corruption we should be aiming at, and it is not what the hon. Member for West Lothian (Mr. Dalyell) had in mind.

Mr. Taverne

The hon. and learned Gentleman, who is concerned with fairness, rather dismissed the unfairness of having one system for those with High Court orders for maintenance and another for those with magistrates' court orders. He said that most people who obtain maintenance orders in the magistrates' courts do not pay tax. Did he base that statement on research? What grounds has he for saying that there are not far more people affected by magistrates' court orders than High Court orders who have to pay tax?

Mr. Rees

Perhaps the hon. and learned Gentleman will tell us the scale of magistrates' court orders and then the Committee will be able to judge for itself.

Mr. McGuire

The hon. and learned Member for Dover (Mr. Peter Rees) cannot get away with it like that.

Mr. Taverne

I will answer that point later.

Mr. Rees

The final category of sources of income for children are sources that result perhaps from the death of a parent, when children are left money or perhaps benefit from an annuity fund set up by the company employing their deceased parent. By no stretch of the imagination can that be called an exercise in tax avoidance. Labour hon. Members are becoming obsessed with tax avoidance. Instead of trying to stop up the loopholes, they would do much better to take a long cool look at the system. Is it not better to try to reduce rates across the board, which is what the Government are dedicated to doing?

Mr. McGuire

Does the hon. and learned Gentleman realise that for the man with two children earning £30 a week to have had 6d. knocked off income tax, before the Government increased school meals and prescription charges, was worth about 4s. a week?

Mr. Rees

The hon. Gentleman must realise two points. First, this Bill is, I hope, only the first instalment of many measures to reduce tax. When making a start one does so in those categories which bear the heaviest burden of tax. I do not find anything particularly odd about that. [Interruption.] Although this is a cause of merriment to hon. Members opposite, it is a profoundly serious problem, because a great deal of talent is being driven to find work abroad or to undertake jobs that are only marginally useful to the economy, because they perhaps enable them to pay a little less tax. I would prefer a system that encourages people to work in this country and earn big money and keep it. That is the only way in which we shall unlock the latent talent of the country.

I shall not follow the hon. Members who strayed into education, because I regard it as a gigantic red herring. If that was the justificaton they advanced in 1968 for introducing their measure then, I would treat that argument with a little more respect—though not a great deal more—but it was not.

I shall vote against the Amendment and for the Clause with real conviction and pleasure because it reverses a rather shabby, mean, little measure which was unworthy of the previous Government.

[Sir ROBERT GRANT-FERRIS in the Chair]

8.30 p.m.

Mr. Douglas

Certain arguments have been advanced, particularly by the hon. and learned Member for Dover (Mr. Peter Rees), in relation to abolishing or at least phasing out the differences between earned and unearned income. I take the view, which I stand by wholeheartedly, that there is a distinct difference, in terms of equity and in terms of social back- ground of the income, between earned and unearned income and that, this being so, they should be taxed differently. I see no reason why we should move, as the Government are, towards fading away the distinction between the rates of tax which should be applied to earned and unearned income.

The hon. and learned Gentleman spoke about why we should or should not make a distinction in the family unit in relation to capital gains tax. He said that if we were going to take the income unit as the family, there should be no subjection of a capital gain to taxation if, for example, that gain were accruing to the son on the death of the parent. But one would have a locking-in of society and little redistribution of income within the society as a whole by that means. I do not think one necessarily stands on fixed principles and drives them to illogical conclusions. The logic of the view I hold here relates firmly to equity. It relates to the concept that, if we are to have a system of society in which people have the possibility of transferring income flows from grandparents or parents to children, and using a flow of unearned income to subsidise, as it were, a family unit, that situation should be looked at by society as a whole.

Hon. Members on this side of the Committee are not unmoved—we are not hard-hearted—by the pleas put forward about thalidomide children, for example. But it is difficult to accept that all these income flows in such particularly sensitive parts of the community would amount to about £45 million. If the proposal here involves some £15 million, then the total flow must be in the region of £45 million. I find it difficult to believe that we have such a number of people in society who have had income of this nature settled on them to a total of about £45 million and are going to be ameliorated by the Clause to the tune of £15 million. That is a difficult piece of statistical information to believe if it is to be quantified like that. I hope that the Financial Secretary will give some information of the numbers who might be affected.

Hon. Members opposite have been squeamish when we have touched upon the issue of privilege in education. I readily see why. This is an issue where the two sides part company. Their view of education is totally different from ours. They view it in terms, to use their own phraseology, of "arranging one's affairs". How are one's affairs aranged in relation to education? To them, education is a ladder and one is always going up the ladder of education. But if one is on a ladder, the probability is that there is someone above who is standing on one's knuckles, and to keep one's place one is standing on someone else's knuckles. This provision is a device to keep certain places on the ladder.

The Financial Secretary, in an interjection, seemingly tried to place some of us in difficulty, but I will face the issue. I do not believe that this was the prime motivation of the provision in the 1968 Act, but I also do not think that the consequences in relation to education were totally undesirable. I think that it is undesirable that, if we have a system of education where people want to pay for it, they should if possible pay for it out of their earned income flows and not out of unearned income flows, which are the basis of privilege. I do not run away from that issue, and I have as great faith in the background of my old school as some hon. Members opposite, rightly or wrongly, have in theirs.

I think that the Government will have extreme difficulty in arguing the case that they are proposing this Clause on the basis of looking after these particularly unfortunate sections of the community. The late Iain Macleod's name has been mentioned on both sides of the Committee—rightly so, because he was a man of compassion and understanding. But I think that if he had been responsible for this Budget he would have had much more concern for the 820,000 unemployed than for the very small minority who hon. Members opposite are arguing should be protected.

The real reason for the Clause is that it will perpetuate the possibility of keeping rigid class divisions in our society. One of the sad things I have experienced in this House is that the Government are pushing through measures which are stirring up pools of class division which I thought had been stilled. Some hon. Members opposite are young and abrasive and have no experience of the trials and tribulations of unemployment and poverty. From their point of view and background, they will support the Clause. From my point of view and background, I oppose it because I recognise that what our society wants is not division but healing and 'hat this type of provision will cause division. As my hon. Friend the Member for West Lothian (Mr. Dalyell) said, it creates a feeling again of unfairness and injustice. I do not want a system of uniformity, but indeed the system which the Government are pushing through will perpetuate feelings of unfairness and injustice, and that is why I support the Amendment.

Mr. Kenneth Lewis

I suppose it was entirely predictable that the Opposition should choose to oppose this Clause. They introduced this measure in 1968, but it had taken them a long time to do so. They had several years to do it but waited until then to introduce this aggregation of children's income with that of the parents. The only reason why it was introduced was that there was a battle within the party between those who wanted a wealth tax to fulfil an election pledge and the Opposition Front Bench who, in the main, did not wish to have a wealth tax. This was one minor way in which they were able to convince the extreme elements in the party that they really were going for the rich.

It was a puny measure. Almost all hon. Members opposite have argued as though the rich should have no privileges whatever arising from their wealth. Obviously, if people have wealth much of it is accumulated from earnings. Hon. Members have talked in terms of wealth as though none of it was accumulated out of earnings, but quite a lot of it is. It arises from savings, from investments which grow in value. At a middle stage of life there are a lot of people who started with very little and who have accumulated some money. It is right that they should be allowed to do what they want with their money.

We are in the ridiculous situation in which lion. Members opposite apparently say that it is right that a person should be able to buy a house for his mistress or secretary, or someone of that sort, but he must not make any funds available to his children. If money is made available for a child it arises from savings. It may be the present generation's savings or the past generation's, but it is savings that have been accumulated. The judgment of the father or grandfather is that the money should be passed down. Clearly there is a tax advantage, but that is only there because the person who already holds the money up to this point has been able to retain only 6d. in the £. Whatever he has, he is still left with his income tax at a very high rate.

I believe that it is a mistake to give children too much money at too young an age. It is not an advantage to them. There is something to be said for making sure that their education is soundly based, if that is what is wanted, but otherwise it is a mistake to give them too much. Children suffer from it.

Mr. McGuire

The hon. Gentleman also thinks that it is a mistake to give it to the workers.

Mr. Lewis

The workers do very well. I understand that recent wage increases have been going ahead so fast that both Government and Opposition are concerned about inflation. They do reasonably well from their incomes. I am sure that hon. Members opposite understand that there are those who, whether we like it or not, have plenty of money and who invest in industry, thus enabling workers to keep in full employment. Hon. Members opposite have spoken of unemployment and one of the ways of getting rid of it is through people putting money into industry, expanding the economy.

It has been said that we have a phobia about the public schools, but the matter was not raised on this side of the Committee. We have had from several hon. Members opposite a clear indication why this matter was introduced. It seemed clear to me that they were trying to prevent the payment of fees in public schools by parents or, particularly, by grandparents. I did not go to a public school so I am not personally involved, but I have in my constituency about three public schools—it is almost our main industry. I am connected with two of them and I want to tell hon. Members opposite that the public schools are not filled with children whose parents are in the category dealt with here. The public schools are filled with the children of parents who are in the middle-income group. Most of them do not have grandparents who could help to pay the fees. The parents of most of these children could not set money aside to save their lives, for most of them are scraping to pay the fes. It is the children of such people who are filling the public schools. There may be parents at the top end of the income scale who are paying fees out of the income of their children, but they are very few.

8.45 p.m.

Mr. Thomas Swain (Derbyshire, North-East)

My hon. Friend mentioned the public school system not to castigate it but to bring to the notice of the Committee the fact that children being educated at public schools as a result of the Clause would be educated as a privileged class in society by a Tory contrived tax-dodging provision.

Mr. Lewis

What I am saying is that the number of people affected by this provision and with children at a public school is very small. Not to make this change would make no difference to the public schools. They will survive or not on the people in the middle band of income. Those people may find it difficult as inflation puts up costs and fees, but they will endeavour to send their children to the public schools which will survive on those people and not on the rich who are able to hand down money to their children.

I did not find it extraordinary when the Labour Government introduced their provision, because it was typical of the kind of class provision which the Labour Party would introduce. It was introduced to placate certain members of the Labour Party who wanted the Labour Government to go further. However, the Labour Government said, "This far we shall go". But I am surprised by the attitude of Labour Members. People with money may give it to a charity, or to any other relative, and not be caught by this provision.

Mr. Swain

They can give it to the Tory Party.

Mr. Lewis

They can give it to Tory Party, and certain wealthy people have been known to give money to the Labour Party. Wealthy people can give this money to anybody else and not be caught by the provision.

But charity begins at home, for the rich and for the poor. People tend to help those nearest to them first. I believe that it is a mistake to lace children with too much money too young, but it is equally ridiculous to leave it until it is too late, until the parent is at death's door.

In the last Parliament there was introduced a Private Member's Bill, which had Government support, which changed the law of divorce. I was involved in the discussion, which lasted for many weeks. Divorce is now much easier. In a year or two, probably before the end of this Parliament, many marriages will have been broken which have been waiting to be divided. The children will require support. Under another Measure linked to that change, the courts will lay down financial provisions for both parties and for the children. The courts must be able to ensure that provision is made for the education of the children. They may be in the middle of their education. Alternatively, they may have to make provision for the children to be looked after because of the break-up of the marriage.

The Government were right to put the Clause in the Bill. In this connection, I see no difference between unearned advantage and earned advantage. Children are not stopped from earning money. Attempts have been made to restrict the age at which children earn. They have never been very effective. Children who appear in television advertisements earn quite large sums. Going down the scale to the other extreme, plenty of boys earn money by delivering newspapers. There is no restriction on what they earn.

There is no restriction about children winning the premium bonds. A child can win £25,000. When the Bill is passed, he will be able to win £50,000. Hon. Members opposite say that the income from it should be aggregated with that of their parents.

Mr. Douglas

Why not?

Mr. Lewis

Why? Many children have premium bonds. It is a favourite form of gift which aunts and uncles give on birthdays and at Christmas. There is nothing to prevent children from winning quite large sums of money from the the Treasury, and there is no reason why the income from them should be aggregated. It is their own money and not that of their parents.

Mr. Douglas

The hon. Gentleman is defeating his own argument. He has made the point that children should not be spoiled by having too much money. But if a child wins the premium bonds he will not have the exclusive use of the money. Surely it will be aggregated. Why should it not be taxed?

Mr. Lewis

Of course the child will not have the use of the money. The income from the money, which will be invested, will be trusted and added up each year. It will be used for any purpose on which the trustees decide. It will accumulate until the child is 18 or 21 years of age. I do not suggest that he should spend the income. I am saying that it should be the child's income and should not be introduced into the family budget so that the parent must pay tax on it. That would be the situation without this Clause.

Young people of 18 going to university —we meet them in the Members' Lobby —say that they cannot manage because of the means test imposed on their parents under the grant system. At least some advantage is to be gained by the parents and the child if money is available to the child, from whatever source it comes—it may be provided by grandparents who invest it for him—and added to his income while he is at university. Many university students find it extremely difficult to manage while undergoing their higher education because of the means test imposed on their parents.

Mr. Michael Meacher (Oldham, West)

It has been said that the fundamental inequity of the Clause is the invidious distinction being drawn in practice between the treatment of the children of the poor and that of the children of the rich. A clear and outright anomaly is being created in the concept of family under fiscal law, on the one hand, and welfare law, on the other. In every aspect of welfare legislation an individual's claim for benefit is always assessed explicitly within the context of the family unit. This is pre-eminently the case in regard to claims for supplementary benefit by an individual, subject to certain minor disregards, with earnings by any child being fully taken into account according to a prescribed scale. The same rule also apply in the case of local authority discretionary means-tested benefits. Nor is it a convention which hitherto the present Government have seen fit to repudiate.

In regard to the income in Family Incomes Supplement pioneered by this Government, the relevant yardstick for eligibility is the gross family wage. In strict application of this principle the F.I.S. regulations make it clear that any earnings or unearned income of any older children should be fully taken into account for computation purposes. Nor is the idea of disaggregation a sudden change of mind by the Government, since there is no reason to doubt that with the second means-tested benefit that the Government are introducing, namely, housing allowances, the same criterion of family income, with children's earned and unearned income taken into account, will be applied. One can only conclude that the reason for the deviation from this hitherto virtually universally applied concept lies in the sectarian interest of that small but highly significant minority of the rich, whose preservation has always been the traditional raison d'être of the Conservative Party.

Mr. Peter Rost (Derbyshire, South-East)

Rubbish!

Mr. Meacher

If any better explanation can be found for it, I have yet to hear it from the debate today.

This idea is reinforced by Clause 15 where the validity of the family concept is breached by the option of separate assessment for taxation purposes of a wife's earnings. The blatant class bias of the Government's selective disaggregation proposals is exposed not only by the tiny number of children with significant unearned income, but also by the fact that separate tax assessment for wives is a surtax concession limited to those with incomes over £5,250 a year.

The highly partisan bent of these new measures is poignantly illustrated this very day by the Supplementary Benefits Commission's report on cohabitation, which makes it clear that the unmarried poor couple living together, with the woman dependent on supplementary benefits, so far from having the option of separate assessment, are forcibly conjoined by allegations of liaison to the extent that the woman may be deprived of benefit on the ground that she is regarded as being dependent on the man. Probably no Government in recent times have ever contrived within a single day to bring forward measures of such clashing and inconsistent principle. Nor in regarding Clause 10 as a form of special pleading, indeed in straightforward terms as abuse, am I alone. I should like to quote some words: A situation might arise in which parents deliberately arranged that some of the income due to them was put into the name of one of their children. If that happened we should have to take it seriously, because it would be inequitable as between one household that did not do it and another that did. It is simply in order to protect the public purse against abuse of that or a similar sort that I wish to keep this regulating power in the Bill."—[OFFICIAL REPORT, 18th November, 1970; Vol. 806, c. 1292.] Those were not the words of some hardhearted Labour Minister tilting at the windmills of the rich. They are the words of a highly honourable and intensely well meaning right hon. Gentleman, the present Secretary of State for Social Services, on 18th November last, when piloting the family incomes supplement through the House. If it is an abuse as he said to be taken seriously, indeed to be blocked, that a poor parent arranges that part of his income due to him is put into the name of one of his children, then it is equally an abuse that all those grandfathers suffering from a surfeit of surtax should seek to relieve themselves of their burden by this antisocial tactic so roundly condemned by the present Secretary of State for the Social Services. The principle in both cases is unequivocally identical and the only relevant difference would appear to lie in the political inclinations of the different parties involved. No one could ever deny that the Conservative Party looked after its own.

9.0 p.m.

Another disturbing aspect concerns the Treasury's apparent ignorance of the precise income distributional effects of the disaggregation proposed. The Financial Secretary will know that I recently tabled a series of Questions on this point, to which, I am bound to say, the answers were singularly evasive and unhelpful, and embarrassingly so.

Mr. Patrick Jenkin

I assure the hon. Gentleman that it was no part of my intention, in giving him what I fully recognise to be very unhelpful answers, to evade the Questions. I ask him genuinely to believe that I and those who advise me could not understand his Questions. Where we could, we gave some answers, but the majority were drawn in such a form that they simply did not admit of an answer.

Mr. Meacher

Let me go through a few of the Questions. I asked what estimate had been made in the case of children under the age of 18 covered by by covenants in 1967–68 of the cost in that year and in 1972–73 respectively of the income tax and surtax relief accruing to grandfathers, and how many of these children had parents with an income over £5,000, £7,500, £10,000 and £15,000 respectively. I was told that the information was not available. It certainly should be.

I also asked what would be the cost in loss of tax from the reintroduction of the non-aggregation rule in the case of children under the age of 18 covered by industrial and company schemes whereby public school loan stock is bought and school fees are waived. I was told rather curiously, that the Financial Secretary did not understand what schemes I had in mind.

I also asked, relevantly to this debate, on 11th February this year, how many accumulation settlements exist in Britain at this time in favour of infants, what was the total capital value of the sums at present covered by them, and what was the estimated saving in family liability to income tax, surtax and estate duty estimated to be achieved at present by their use. Again I was told that the information was not available.

Though difficult and technical questions I do not think that these are unreasonable questions. I regard the absence of the facts to answer them as thoroughly deplorable. But even if those precise questions cannot be answered by the Minister, will he state what he knows about the number of children currently in receipt of unearned income and how many receive such income of particular scaled levels? Will he also state, with regard to children in each of these unearned income bands, what he knows about the range of parental incomes involved, and the tax savings accruing at each unearned income level as a result of these disaggregation measures?

That is not at all an unreasonable request. It seems that if a sum of £15 million to £20 million is involved—I notice that the financial statement gave the lower figure; it is probably well over £15 million and about £20 million—according to an answer on 11th February, it is surely requisite, with a tax concession of this magnitude, that we know the precise distribution of the personal gains involved. I stress this because the Clause is not only a major tax give-away in its own right but it also has a crucial rôle with regard to the tax avoidance machine which will soon be rumbling in the City.

We know that gifts inter vivos valued for stamp duty have been climbing steeply throughout the 1960s to a current level of about £135 million a year. We know also that the age group where wealth is most unevenly distributed, according to a survey by Lydall and Tipping, is that of young adults between 20 and 24. It is clear that any apparent reduction in the inequality of wealth which is supposed to have occurred since the war is a mirage. It conceals that what has happened is that there have been massive transfers of wealth within families from older to younger members.

Clause 10 carries the vital implication that not only will those transfers between family generations of substantial quantities of capital escape the estate duty net. It also has the implication that the surtax embarrassment which would otherwise be caused to parents of the favoured child is to be swept away. As such, it is a major encouragement to tax avoidance on a massive scale.

The function of Clause 10 is clear. It is not the act of a tax-reforming Government. Its justification is not technical but partisan. Like all such politically motivated measures it should be rejected.

Mr. Hamling

One of the ironies of this debate is that it contrasts with the debate in Committee on the Finance Bill in May, 1968. Then, the Conservative Party was not claiming that there should be a change across the board. It was not claiming that the aggregation of income should be wiped out altogether. It was not claiming that the aggregation of investment income should be swept away.

The late fain Macleod moved an Amendment which he described in column 849 of the OFFICIAL REPORT of that day as being concerned with specified classes of income. The debate on that Amendment was interpreted strictly by the Chair as not dealing with general principles. It was dealing with specific cases, especially with what became known as "little (c)", and it had nothing to do with general principles.

When lain Macleod spoke in that debate, he is reported in column 974 as saying: We are not concerned either with the generality or with very wealthy people. We are concerned with the exemptions to which ordinary common sense and humanity alike demand that the Government should agree."—[OFFICIAL REPORT, Standing Committee A, 15th May, 1968, c. 974.]

Mr. Patrick Jenkin

I apologise for interrupting the hon. Gentleman, but I cannot find those words in column 974 of the OFFICIAL REPORT, for 15th May, 1968.

Mr. Hamling

The words appear in that column in the volume that I have. I will pass it to the hon. Gentleman, and he can see for himself.

It is remarkable that, when the present Government have had a chance to fulfil their pledges, they do not come back on these special cases. They come back on a general case, not to do with earned income, not to do with hardship, but to do with investment income and income across the board. That is the Clause with which we are dealing. Is the hon. Gentleman quite happy now?

Mr. Patrick Jenkin

It is most mystifying because it is quite different from my volume.

Mr. Hamling

Such is life. That is why we perhaps get it right.

It comes as a surprise that the Government should have such a strange sense of priorities. They deal with this particular tax change in their first Budget and Finance Bill. We cannot call it a tax reform. It is not a reform; it is a tax regression in the double meaning of that word. It is a regression historically. It is a reversion to type. It is the restoration of devices for tax avoidance. One must be careful about using the word "avoidance". I remember that, when discussing the matter upstairs in 1968, one hon.

Gentleman chided me with talking about tax evasion. I was most careful in that debate not to use that term. I know that the Front Bench spokesman for the then Government, now the noble Lord Diamond, talked about dodging. But dodging is not tax evasion; it is tax avoidance. I call it moral evasion. It is the evasion of one's moral obligations to the community in which one lives.

It is remarkable that one of the first priorities in this Budget should be this particular device. If the Government were concerned for the hardship cases about which they waxed so eloquent in 1968, they could have taken specific steps in this Bill, to produce Amendments along the precise lines of what they wanted to do. We would not have any right to complain if they did that, but they are not doing it. This is right across the board.

Another astonishing thing about the Bill, the debate which we have had and the publicity which has taken place, is the constant boast by the Government about what they are doing for the poor. Is this a device for assisting the poor? Nobody has gone on television or on radio to boast about this provision. I wonder why? Why are they so coy about it? Why are they so reticent? Why are they so modest? One thing of which the Government cannot be convicted is modesty. The Secretary of State for the Environment was on television last night boasting about what they were doing—first in this and first in that. But he was not boasting about the restoration of tax avoidance, which is what this device is about.

The Secretary of State for Social Services has been boasting about what his party is doing for the poor. He has not boasted too much about what it is doing for the rich. Right hon. and hon. Gentlemen opposite are curiously reticent about the assistance which they are giving to their wealthy supporters. These are subsidies to the wealthy. It comes ill from a party which is always boasting that subsidies should never be given to the wealthy. Why subsidise the wealthy? Tory policy is that concessions should not be made to people with lots of money.

Mr. Kenneth Lewis

Where is the subsidy?

9.15 p.m.

Mr. Hamling

I will tell the hon. Gentleman. By avoiding tax, the Revenue must make up the difference by taxing more the less wealthy. That is precisely what this is. If the Government are giving £15 million in tax concessions to the wealthy, and they want to maintain the revenue, that can be done only at the expense of the less wealthy taxpayer. On the other hand, if they are saying that they are reducing the tax liability, then surely the obvious thing to do is not to give the concession to the wealthy, but to give it to the less wealthy. In other words, this tax concession is a subsidy for the very wealthy taxpayer at the expense of the not-so-wealthy taxpayer.

Mr. Kenneth Lewis

I apologise for not having heard all the hon. Gentleman's speech, but I had to leave the Chamber to have a cup of tea. The Government have done nothing of what the hon. Gentleman alleges. They have made this concession, and they have reduced taxes. They are a very clever Government. They have done the exact opposite of what the hon. Gentleman is saying.

Mr. Hamling

I hope that the hon. Gentleman will now go out and put another whisky in it. He has confused two things. First, he did not listen to the sentence which I completed just before he intervened. Perhaps I may remind him of it. When I was a schoolmaster I sometimes used to repeat things twice for the slow learner. I said that in giving this tax concession to the wealthy the Government had deprived themselves of the opportunity of giving the same tax concession to the less wealthy. In my view that is a subsidy to the wealthy taxpayer, at the expense of the less wealthy taxpayer.

The hon. Gentleman was foolish enough to talk about tax concessions to the lower paid. What he forgot to say—and I remind him of the speech that I made during the Second Reading debate on the Finance Bill; it is in the Library, and the hon. Gentleman can read it, though he may not be able to find the right page, in the same way as his hon. Friend could not do so a few moments ago, but it is there—was that the tax concessions to the less wealthy were more than offset by the increases in the charges made for the social services. The hon. Gentleman's was not a very happy intervention, and he should know better.

One of the accusations made by hon. Gentlemen opposite is that this all springs from envy in our part. It is not envy at all. It is a sense of social justice which prompts us to take this view. We have always felt—and our taxation policy has been inspired by this philosophy ever since we were a party—that the wealthier people ought to pay a much higher proportion of their income in tax than the not so wealthy. We believe in much more progressive taxation. Hon. Gentlemen opposite do not. They believe in more regressive taxation, and this device is an example of that.

Because of the careful husbanding of resources by my right hon. Friend the Member for Birmingham, Setchford (Mr. Roy Jenkins)—[Laughter.] One can only look at the figures. One can refer to the fact that in his Budget speech the Chancellor of the Exchequer said that there was £1,000 million to dispose of, but how did the right hon. Gentleman dispose of that sum? The answer is, not to the lower paid taxpayer, but to the wealthy taxpayer, by means of the cuts in corporation tax, S.E.T., and all these other devices. No one will persuade me that the housewife will get the benefit of the cut in S.E.T. It will go into the profits of the distributors. [HON. MEMBERS: "No."] All I hope is that hon. Gentlement opposite will now start a little aggregation themselves and will start aggregating the price concessions, such as they are, against the profits of the big private distributors, such as Tesco, and so on.

The charge is that we did this out of envy. We did it out of a sense of justice. An awful lot of people over the years—as my hon. Friend the Member for Oldham, West (Mr. Meacher) said in his very well documented and unanswerable speech—were avoiding tax. We brought in a device to prevent it, and one of the first things that the Conservative Party did was restore this ability of the rich to avoid ax. Envy, no. Justice.

Mr. John Gorst (Hendon, North)

Incompetence.

Mr. Hamling

The hon. and learned Member for Dover (Mr. Peter Rees), who was quick to make a speech and just as quick to get out after he had made it, said a lot about tax counsellors. Increasingly, over the years, tax counsellors and accountants have been used by the wealthy to avoid tax. He said that the poor can avoid tax just as much as the rich. All I can say is that the poor cannot afford his fees or those of the other accountants and counsellors who wax fat—

Mr. Barnett

Hear, hear.

Mr. Hamling

Yes, there is no reason why we should not spoil the Egyptians now and again—

Mr. Barnett

The Zionists, please.

Mr. Hamling

I want to come to the real belief of the Conservative Party in aggregation. They have two rules in this—one rule for the rich and one for those who are not so rich. [Laughter.] Before the hon. Member starts grinning, let me remind him of the attitude of the Tory Party to the means test in the 1930s—[HON. MEMBERS: "Not again."] They do not like being reminded of this. Let me tell them my own family's case—[Laughter.] I was a student at the University of Liverpool from 1931 to 1935, on a grant of £26 a year. That was aggregated under the means-tested regulations of the National, Conservative-dominated Government of the time, and it was regarded as sufficient to keep me for 12 months—£26 a year.

Mr. Barnett

That is why my hon. Friend is so thin.

Mr. Hamling

That was aggregation by a Conservative Government, precisely the same sort of aggregation as that which my hon. Friend the Member for Oldham, West was talking about in regard to the family incomes supplement and social security. The Conservative Party believe in aggregation where rent rebates, rate rebates and council house rents are concerned. I have no doubt that, after the borough council elections, the Secretary of State for the Environment, when he brings forward his fair rents proposals, will aggregate all income for rents. But not for the wealthy. And they talk about envy, about greed, about principle. There is no principle in this except the self-interest of the wealthy.

Mr. McGuire

I had prepared a lengthy speech, but I must put that aside and feel grateful for having a few moments in which to address hon. Members. I am obliged to the Financial Secretary for giving me this opportunity and I promise to be brief.

The hon. learned Member for Dover (Mr. Peter Rees) said that when my right hon. Friend the Member for Birmingham, Stechford (Mr. Roy Jenkins) originally introduced this piece of legislation he brought it forward as a sop to divert Labour supporters who were clamouring for a wealth tax. He went on to say that a lot of Tories regarded my right hon. Friend as the "heart of Balliol."

I mention this only because it enables me to warn my hon. Friends who may one day become Labour Chancellors of the Exchequer that they will do more good if they are known as the "heart of Ince" and if they particularly have at heart the problems of constituents like mine, who were not terribly concerned when this piece of legislaton which hon. Gentlemen opposite intend to repeal was first introduced. It did not affect them one iota and they probably thought of it as a piece of social justice.

I thank the Financial Secretary for some assistance that he has given me in dealing with anomalies that I have brought to his attention. I agree that there are children —thalidomide children have been mentioned, but they are only one group—who receive compensation. My son is in this category and I am at present discussing with the tax man whether he should pay tax on some money that he has obtained.

Hon. Member may recall the case of my boy. He suffered the loss of both legs in a bus accident when he was aged four. My fellow trade unionists in the pits and elsewhere collected £2,800 for him, because he did not get a copper coin from the courts for the loss of his limbs. It was a great tragedy, but there it is. He has now been assessed for tax purposes and a dialogue is going on, with an exchange of letters, and it seems ridiculous for me to be taxed on his income.

I agree that where there are particular cases of hardship, Parliament should, in its wisdom, overcome the difficulties as and when they arise. I pay tribute to the Financial Secretary for the help he has given me, not only in this instance but in another case. I refer to a group of old-age pensioners in Skelmersdale who banded together to save money for the contingencies of life, such as gas and electricity bills. Being elderly, this suited them.

However, when they drew out the money they found that their savings had gained interest, that the money was regarded as an investment and that corporation tax was required on it. It seemed madness to me. I raised the matter with the Financial Secretary and, with his help, the problem was solved in a sensible way.

I sometimes get annoyed when I hear hon. Gentlemen opposite say that because they pledged themselves to do something at the election they are in honour bound to do it. The hon. Member for Rutland and Stamford (Mr. Kenneth Lewis) said that the main industry in his constituency was public schools. Incidentally, why they are called "public" is beyond me. He said, in effect, that that was the big industry in his area, and he went on to say that he was in favour of good weather on his holidays—that being the sort of line which his speeches usually follow. But the serious point is that the hon. Gentleman chided us for our election pledges, and I now throw out a challenge to him and all his right hon. and hon. Friends about their pledges. I think that it was the hon. Gentleman who, when in Opposition, tried to introduce a Bill to give a pension to the over-80s.

Mr. Kenneth Lewis

No.

9.30 p.m.

Mr. McGuire

All right. I thought that it was the hon. Gentleman, but I remembered wrong. The Tories used to chide the Labour Government for not giving pensions to the over-80s. [HON. MEMBERS: "Shame."] It is a bigger scheme that you conned the public, because you only gave them a part pension; you did not give them—

The Chairman

Order. The hon. Gentleman must not blame me.

Mr. McGuire

Quite right, Sir Robert. I withdraw that. I do not blame you for that offence. But when the Tories were shouting the odds about pensions for the over-80s, did any of them believe in their hearts that it meant what the present Secretary of State for Social Services said when I challenged him on it—"We only promised them a pension"? In other words, it is like some hire-purchase agreements—people should have read the small print. The Tories never wanted to give them a full pension.

The Minister of State, Treasury (Mr. Terence Higgins)

rose—

Mr. McGuire

Iain Macleod has been mentioned today. He has been mentioned that often—

Mr. Higgins

rose—

Mr. McGuire

Just a moment. I am finishing on this. The late Iain Macleod has been mentioned so often today that I half expected someone to go round with a plate. He has almost been sanctified. [HON. MEMBERS: "Shame."] The late lain Macleod made a pledge about family allowances, but the Tories very quickly ditched that pledge. In the same way, it is a shameful thing that they are doing now.

Mr. Patrick Jenkin

A few moments ago the hon. Member for Ince (Mr. McGuire) held the Committee in a sympathetic silence as he recounted the story of the disaster to his own small boy, and, for the first time in this debate, from his side of the Committee, there came a glimpse of what the Clause is all about. We are deeply grateful to the hon. Gentleman, and we appreciate what he said.

I ask the Committee to reject the Amendments. We gave few specific pledges on taxation, but this was one of them, and, indeed, it was the only one in respect of which we specified when Labour's measure would be repealed.

I remind the Committee of the words used by Jain Macleod on 20th May, 1968, at the end of many hours of fiercely contested debate It, therefore, falls to me to make clear the attitude that the next Conservative Government would take towards this proposal … I wish to make clear that we shall have nothing to do with this Clause and this Schedule. I do not simply mean that we shall amend it —here, perhaps, is the answer to the hon. Member for Woolwich, West (Mr. Hamling)— We shall repeal it at the earliest possible moment. We regard both the Clause and the Schedule as bitterly offensive to the principles of natural justice. We have fought strenuously against it in Committee and we do not regret a moment of the time which we have spent on it. To all those people who have written to us, and to everyone else, I make quite clear that when a Conservative Government is returned, in its first Budget this Clause and Schedule will go."—[OFFICIAL REPORT, Standing Committee A, 20th May, 1968; c. 1076–7.] As the Committee knows, in our manifesto we repeated the pledge, briefly but in no less specific terms: We will repeal the Labour changes which have imposed new penalties on children's income. The Government are fulfilling that pledge to the letter, and no one could or should, have expected otherwise. My hon. Friend the Member for Wycombe (Mr. John Hall) said that that in itself would be a good reason for this Clause.

Of course there are other sound grounds as well. My hon. Friend the Member for St. Marylebone (Mr. Kenneth Baker) asked why it had to wait until next year to take effect. I remind him that just as the aggregation of children's income took effect a year after the relevant legislation was passed, for administrative reasons, so—and I say so regretfully—disaggregation cannot become effective until 1972–73, for the same reason.

We have imposed on the staff of the Inland Revenue substantial burdens with our proposed unification of income tax and surtax and a number of other changes. It is because of the necessary administration involved in these changes that this change could not take effect until next year.

Like a number of other hon. Members, I have re-read most of the 1968 debates on Clause 15 and Schedule 8 of the Finance Bill of that year. I am glad that the hon. Member for Heywood and Royton (Mr. Barnett) recognises—as other hon. Members have—the notable part that Iain Macleod played in those memorable debates. No one who heard Mr. Macleod move the first Amendment in Committee upstairs on Clause 15 will ever forget the passion, the burning anger which illuminated his speech. For me it was one of the most devastating and impressive speeches I ever heard him make.

Mr. Hamling

I agree, but would the hon. Gentleman not agree that the emotion was particularly directed towards the points I made—the exceptional cases of hardship, cases which are not the subject of this Clause?

Mr. Jenkin

Perhaps I shall be allowed to develop my speech, and the hon. Gentleman will see that Mr. Macleod was not so wide of the mark. That mood of anger was one that sustained us throughout the many hours we debated this clause both in Committee and in the House.

We wrung one valuable and significant concession from the Government. Certain compensation cases were excluded. As the hon. Member for Ince was speaking I reminded myself of the narrow closely defined wording—no doubt the subject of his correspondence with the tax inspector —of the exception which allowed income from compensation paid in satisfaction of a claim for injury to the child. It never went any further.

The hon. Member for Heywood and Royton was wrong to say that we covered all the cases where the compensation goes to the parent. We never covered the case where the parent was killed and the child received the compensation. That still remains covered by the Section. [Interruption.] I may have misunderstood the hon. Gentleman. The main mischief of the Section survived our onslaught on it, and for that reason we committed ourselves to repeal it. We did so because we reject utterly the philosophy which gave it birth. We deplore the miserable inequities of its operation. We condemn the inconsistencies which it inevitably involves. I shall deal with the argument in favour of the Clause and against the Amendments under these three heads.

I begin with the inequities, because, as a number of hon. Members have said, this was the case we made in 1968. The Clause has hit hundreds and thousands of families of quite modest means, many of whom have suffered misfortune in one way or another. Even since the election many hon. Members on both sides have drawn to my attention cases which fell fairly and squarely within the mischief which we attacked in 1968.

Mr. Sheldon

I have not.

Mr. Jenkin

It may be that many hon. Members have not, but I can assure the Committee that many hon. Members have.

The death-of-the-breadwinner cases are often the saddest. Income on compensation paid to a child under the Fatal Accidents Act is aggregated with that of the surviving parent and, as such, taxed at the parent's top rate of tax for investment income. That can often mean a higher rate of tax than on any other part of the parent's income. It can bring into the tax net a family whose income would otherwise be so low as to be below the threshhold, or it can bring people into surtax hundreds, even thousands, of pounds below the relevant level of income for earnings, because surtax begins on investment income at £2,000 a year less than for earned income.

The noble Lord, Lord Diamond sought to distinguish the death of the breadwinner cases from what we came to call the thalidomide cases, the child compensation cases. He said that there was a vast distinction in principle. I defy any right hon. or hon. Member to detect it. I am willing to bet that the hon. Member for Ince is unable to see it. No one will ever convince me that this is the sort of case in which the tax system should squeeze the last ounce of tax out of the taxpayer.

Then there are the disablement cases, where a mentally or physically handicapped child is helped by another member of the family—a grandparent or other benefactor. A case has been drawn to my attention in the past two or three months involving a spastic girl of 16. The family got together to help, but, of course, found that, in 1969, the girl's income was aggregated for no other reason than that, simply because she was a spastic, she was incapable of working regularly and so taking herself out of aggregation. No amount of academic logic will ever convince me of the justice of that. Again, take the case where the parent has to retire prematurely and the family rallies round to help the children's education. Is this the sort of case to be hit by anti-avoidance legislation?

[Miss HARVIE ANDERSON in the Chair]

9.45 p.m.

All these cases were pressed on Ministers in the last Government, yet they did nothing about it. I have had cases of court orders—my hon. Friend the Member for Walthamstow, East (Mr. Michael McNair-Wilson) was one of those who drew my attention to this—where maintenance was ordered to be paid to the wife and, separately, sums were ordered to be paid to the children. I concede at once, and agree with the hon. Member for Heywood and Royton, that these are, of course, the minority of the total of court cases. We have never said otherwise. But there were many cases of court orders of that sort which were affected by aggregation.

In such cases of people of very modest incomes indeed—one is talking of incomes of less than £20—the provision can have the effect of taxing children's income at full standard rate, when hitherto both that income and the wife's maintenance had been free of tax altogether. Where is the sense in that? A broken home is one where already the children are inevitably going to suffer severe disadvantages in life, and they should not be singled out for the full rigours of fiscal legislation in this way.

The hon. Member for Renfrew, West (Mr. Buchan) and the hon. Member for East Stirlingshire (Mr. Douglas) comforted themselves that these were the cases of the little old lady in Giggleswick. I want to deal with that, because I have gone into this matter in some depth with officials of the Inland Revenue. The fact is that the provision hits hundreds of thousands of families of modest means.

Mr. Douglas

Hundreds of thousands?

Mr. Jenkin

Ministers in the last Government were warned of that by hon. Members on their own side. The hon. Member for Birmingham, All Saints (Mr. Brian Walden) had this to say: The right hon. Member for Taunton said that the Clause would apply to tens of thousands of categories. I have a feeling that he is wrong. My right hon. Friend might be able to tell me, but my guess is that it will apply to hundreds of thousands and that, by not having a surtax limit, we have included masses of people."—[OFFICIAL REPORT, Standing Committee A, 15th May, 1968; c. 972.] I asked my officials whether that forecast was right. They described it as an intuitive warning because no one could have known. The hon. Member for Birmingham, All Saints could not have been given an answer, because no-one knew.

Mr. Buchan

If that is the case now, why do not the Government bring in such a limitation instead of opening the door to large-scale tax avoidance by the rich, by repealing the provision as a whole?

Mr. Jenkin

I will deal with that. It seems probable that the hon. Member for All Saints was entirely right. I have asked the Inland Revenue statisticians for the figures. But I hope that the hon. Member for Oldham, West (Mr. Meacher) will realise that we would have to staff the Chief Statistician's Department of the Inland Revenue with tens of thousands of officials if we were to provide the information that he has been asking for in recent weeks. The statisticians have confirmed that the hon. Member for All Saints' institution was not far off the mark. They confirm that hundreds of thousands of families of quite modest incomes are involved where there is no question of surtax arising at all. They have been hit by this provision. I ask why, in heaven's name, the Labour Government thought it right to hit at the lower end of the middle and lower income group families in this way.

Mr. Douglas

Would the hon. Gentleman at some future time give us an indication of the sampling methods employed by the statisticians? He has spoken of hundreds of thousands of families. That means quantitatively more individuals. Will he ask the statisticians to quantify the sums involved?

Mr. Jenkin

I have made it clear that the form in which the statistics are kept does not allow such precise information. But one does not need to go very far on this. Supposing that the average sum of tax involved is the comparatively modest one of £100 a family, and supposing we are talking about the very minimum of my hundreds of thousands—of 100,000 families. There we have £10 million of the £15 million already.

Dr. John Gilbert (Dudley)

It is a "guesstimate", not an estimate.

Mr. Jenkin

I freely concede that. I said, "average". There will be many that will be less and some that will be more. My hon. Friend the Member for St. Marylebone (Mr. Kenneth Baker) reminded us of the rough breakdown we were given even in 1968 of the effects of income tax and surtax respectively. It was one of the points we made, that there would be far more income tax involved than surtax. Why did the Labour Party, when in government, hit the middle and lower income groups in this way?

Here I come to the second arm of my argument—they did it because they founded it upon a philosophy which itself is a nonsense. The hon. Member for Llanelly (Mr. Denzil Davies), in a very competent speech, sought to defend the argument of the common spending unit. These words were used by Lord Diamond in the 1968 debates and I adhere to them. The argument runs something like this: a husband and wife's incomes have been aggregated. This must be because they live in the same household. Therefore, it must be right to aggregate the incomes of children in the same household. So we concoct a sociologist's fantasy—the concept of the common spending unit. We make it clear now, as we did in 1968, that we do not accept the concept or the logic on which it is based.

In the first place, husband and wife are taxed as one as a hangover from the pre-Married Women's Property Act days. The old common law doctrine was that when a man and woman married they became one flesh and therefore it was quite natural, with a 19th century taxation system, to tax the husband on the incomes of both. We know that for over a quarter of a century the wife has enjoyed a separate earned income allowance on her own earnings. There is no aggregation there. On the contrary a wife and husband with earnings are taxed less than if all the income was the husband's.

As the Committee also knows, we recognise the logic of that in Clause 15 of the Bill and are proposing to disaggregate a wife's earnings right up the scale. We see no sense in taxing them at a higher rate than they would pay if they were single. So, where is the common spending unit? The whole trend of the 20th century has been to tax people as individuals and that is how we should treat children with income of their own. My hon. and learned Friend the Member for Nelson and Colne (Mr. Waddington) made a valid point when he asked: if a family is to be treated as a common spending unit why exclude a child's earnings? They are every bit as much part of a family's income. They were rightly excluded, as he pointed out, because politically it was inconceivable that the Government should attempt to get away with it. Yet this conclusion utterly destroys the logic of the common spending unit.

One might ask, why not aggregate the incomes of other members of the household—grandma's pension or auntie's annuity? With the greatest respect, they are not aggregated. Why not aggregate the income of a mother living with her adult daughter as a single household and sharing expenses under one roof'? It is just as much a common spending unit as a family with children. Why not aggregate the income of a child with that of its guardian, not its parent, with whom it may be living for the whole of its childhood? This is a common spending unit and yet the Measure never applied to that.

The truth is that the concept of a common spending unit was never anything more than a cloak of respectability with which to dress up what my hon. Friend the Member for Rutland and Stamford (Mr. Kenneth Lewis) rightly called a piece of Socialist class legislation. Like so many modern garments this cloak is a "see-through" cloak which fools no one.

Least of all did it fool the majority on the Royal Commission on Taxation in 1954. In paragraph 123 of its report it said: The majority did not accept the validity of the generalisation, on which all depends, that the income of an infant, which must be thought of as held and applied by trustees on its behalf, is never anything in substance but a part of the family income. Certainly its existence relieves the parent of some burden of expenditure, but it by no means follows that the relief to the parent is of the same magnitude as the expenditure made on behalf of the child. It would be doubtful justice therefore to attribute the whole of the child's income to the parent and leave him merely to such relief as child allowance might afford him. With that authoritative advice of the Royal Commission, it is perhaps surprising that our predecessors felt it right to legislate in this way, but they of course relied on the minority report, whose author, as everyone knows, was Professor Kaldor.

The reality underneath this transparent cloak, the common spending unit, is that the Clause is unfair and hits hundreds of thousands of people of modest incomes, and it is unconscionable because it hits many of them in circumstances of the greatest misfortune. Above all, it is unnecessary.

A great deal has been said about avoidance. The hon. Member for Woolwich, West, or the hon. Member for Oldham. West, said that the tax avoidance industry would start rumbling away. What on earth does he think has been happening in the last six years? Nothing has done more to boost the tax avoidance industry than six years of Socialist legislation.

Mr. Meacher

Will not the hon. Gentleman accept that the proper way is not to reduce the proper provisions of the law? One does not create a proper morality by doing away with all morality. The important thing is to decide where the tax imposition should be and to ensure that it is kept on.

Mr. Jenkin

The important thing is to take a robust and commonsense view which does a broad measure of justice and keeps the tax system simple.

There are already adequate safeguards against tax avoidance in this respect and I will number what they are, because there is same misunderstanding and some Labour Members have got it quite wrong. First, the child tax allowance reduces £ for when the child's income rises above £115. Secondly, although the child tax allowances are increased in the Bill, the figure of £115 stays the same and this means, because the C.T.A. runs for surtax as well as income tax, that the restriction of C.T.A. costs a surtax payer more than the child gains by being entitled to a separate personal allowance.

Thirdly, and here I come to a point which the hon. Member for Oldham, West had not fully hoisted on board, covenants no longer run for surtax, and, therefore, there is no loss of surtax when a grandfather covenants for a grandchild and there is only income tax up to the level of the single personal allowance, or a little above that if one takes account of the small income allowance. Fourthly, the rule that a settlement by a parent on his own children does not effect a transfer for tax purposes remains, although. of cour3e, we are reducing the age, in line with the Latey Report, to 18. In our view, those are entirely adequate safeguards.

But I quote one more sentence from Mr. Macleod's speech in which he made the pledge, because we still firmly adhere to this: A Government must always reserve to itself the right to deal with abuses, and, if through new uses of insurance policies or in any other way, such abuses arise, it should then consult the life offices and other interests and legislate if necessary."—[OFFICIAL REPORT, Standing Committee A, 20th May, 1968; c. 1076.] I say finally a word about education, because many Labour Members took the view that the Clause was aimed at helping the public schools. I take my stand in exactly the same way as the Government who were our predecessors when we challenged them by saying that their Clause 15 was an attack on schools.

10.0 p.m.

The noble Lord, Lord Diamond, as he now is, said: The right hon. Member for Enfield, West will forgive me in being forthright in my answer. The simplest thing to say is that I was present, as far as I am aware, at every one of the many discussions which went on within the Government and within the Treasury on this issue, with which I am not wholly unconnected. I have checked with the Chancellor. I have checked with the Financial Secretary. Not one of the three of us has the slightest recollection of ever hearing public schools or that issue mentioned. He is totally wrong in suggesting that it was in the front, in the middle or in the back of any one of our thoughts. I hope that the point has registered."—[OFFICIAL REPORT, Standing Committee A, 15th May, 1968; c. 885.] I can say exactly the same for those of us concerned with this Clause.

We have had long debates and they have disclosed deep philosophic differences between the two sides of the Committee. They are unlikely to be reconciled by further debate. Clause 15 of the 1968 Bill was bitterly opposed by us when we were in opposition. We gave a clear pledge to repeal it. That we are now doing. I ask the Committee to reject the Amendments.

Mr. Taverne

As the Financial Secretary said, the Clause is controversial and gives rise to a clash of social philosophy. We are concerned with equity and fairness. The Financial Secretary has totally failed to answer the fundamental point in a speech which was sanctimonious in tone and unsatisfactory in content.

The principle of equity in tax takes two forms. First, it is concerned to ensure that the two taxpayers who are in a similar position are not treated differently; and, if they are, then, as my hon. Friend the Member for West Lothian (Mr. Dalyell) observed, it brings the tax system into disrepute. Secondly, it is concerned to ensure that there is no undue discrimination between rich and poor.

I deal first with the aspect of equity as between different taxpayers in similar positions. The 'hon. Member for St. Marylebone (Mr. Kenneth Baker) referred to anomalies. He said that Lord Diamond, then Chief Secretary, did not move the Amendment till a later stage. Lord Diamond made it clear in Committee that he would move an Amendment and, when he said so, Mr. Macleod answered: I am grateful for what the right hon. Gentleman has said."—[OFFICIAL REPORT, Standing Committee A, 15th May, 1968; c. 891.] If there is a different version in the report which the Financial Secretary has, perhaps he would use the Library copy.

It is strange that the hon. Member for St. Marylebone, or indeed any other hon. Member, should refer to anomalies. There is a fundamental anomaly which will be restored to the tax system through the reintroduction of the old system by this Clause. I means that if a grandfather gives a sum of money to his son for the maintenance of the child he will be taxed more; if the grandfather gives the money direct to the grandchild, saving the father the necessity of spending the money, he will be taxed less. They are in essentially the same position but their tax burdens differ. It is irrelevant for the Financial Secretary to say, "But this does not necessarily affect surtax payers only."

The first principle is concerned with justice between two taxpayers in similar positions who bear different burdens.

I turn to the second example. What happens with maintenance orders? The vast bulk of maintenance orders are made by magistrates' courts in which there is no provision for settlement of the money on the children by a deed of trust. Payments under maintenance orders are made in favour of the mother. Eight times as many maintenance orders are made in magistrates' courts as are made in the High Court. But the situation is different in the case of the High Court. What happens is that the solicitors get together and, justifiably, if the law provides for this loophole, matters are arranged in such a way that the order is not made in favour of the mother or father as the case may be, but in favour of the child.

Again, there is a similar situation between two taxpayers who are faced with the same problem. When this Clause is reintroduced, if it is, one will pay more tax and the other less. But there is a difference between the kind of people involved. The constituents of my hon. Friend the hon. Member for Ince (Mr. McGuire) will not go to solicitors and arrange for deeds of covenant or hearings in the High Court. The Financial Secretary said that only small figures were involved and he gave an example of an amount of £100, but in practically the next breath he contradicted himself and made the point that in the case of small settlements the child allowance would alter the position.

Special provisions are made when it comes to certain kinds of family units. They do not allow parent-child settlements to continue. There are certain cases, as my hon. Friend the Member for Llanelly (Mr. Denzil Davies) pointed out, where this does not apply and where there is no disaggregation for the earned income of the wife. They are concerned with cases where income does not go to the infants in one sense but is applied for the benefit of the infants under trust.

What the Clause will do is to spread the tax avoidance, not necessarily for the very wealthy—though in fact it will do that—but for those who can afford solicitors and who can go to the High Court, such as a grandparent who wishes to provide for the education of grandchildren. The hon. Member for Wycombe (Mr. John Hall), who is not in the Committee at the moment, said that one should not be concerned about the matter of tax avoidance if one gets at a few by penalising the many. But this is no such case. What we are doing here is to deal with a certain amount of tax avoidance and to provide equity and fairness for the many.

Another aspect is the matter of equity between rich and poor. There is no answer the Government have offered to the valid point made by the hon. Member for Oldham, West (Mr. Meacher) about what will happen in regard to social security. What Amendments are to be introduced to abolish the present conception of the family unit in that respect? At the moment, when it comes to supplementary benefit, income to a child on maintenance orders is taken into account and at the moment when it comes to rent rebates, income of the child is taken into account—in other words, it is aggregated.

Mr. Kenneth Lewis

I feel that the hon. and learned Gentleman is misleading the Committee, although I am sure he does not intend to do so. In social security terms the only thing that is disregarded is the child's part. If the child has an income, he does not need social security.

Mr. Taverne

The hon. Gentleman has made a distinction without a difference. Essentially this is a case where the total income of the family spending unit is taken into account for social security purpose.

Mr. Patrick Jenkin

This again is a point which I examined in some detail I am told that the practice is that where an infant has earnings or other income which exceed its own requirements by rather more than the normal disregard, the Supplementary Benefits Commission usually makes special adjustment under its discretionary powers so that the child is left out of account altogether, rather than having its income taken into account as against the parents' requirement.

Mr. Taverne

But what the hon. Gentleman is referring to is the case where a child has a large amount of income. But if the child only has what the child needs, the parents' social security benefit suffers accordingly and the unit is treated as one, and an entirely different standard is applied in those cases to that applied elsewhere.

Mr. Patrick Jenkin

Will the hon. and learned Gentleman give way?

Mr. Taverne

No, I am answering the point which the hon. Member put to me. [HON. MEMBERS: "Misleading."] There is no question of any Amendment being introduced by the hon. Member or by the Government to create a situation where there is disaggregation of income, and what the child gets in these cases is disregarded, except in special circumstances, in the way in which it will now be disregarded for tax purposes.

The same applies in the case of rent rebates. It will be extremely interesting to see what happens in the case of housing allowances. This is yet one further example of the double standards which apply throughout the Bill. Exactly the same point has been made again and again from this side of the Committee, without any answer from the Government side, about the question of poverty surtax, and the question of marginal rates, which matter in the case of the surtax payer but which do not matter in the very much worse case of those who are at

the bottom of the income scale and keep far less of the extra earnings because of the means test system than those at the top of the income scale.

It is a double standard which again can be shown in the totally disproportionate amounts which are provided for poverty and which are provided in tax concessions in this case. The tax concessions in this case are £15 million to £20 million. For family income supplement, they amount to some £7 million. We were reminded by one of my hon. Friends of the pledge of the late Mr. kin Macleod to spend £30 million on family allowances. That money has gone to this kind of relief instead—[HON. MEMBERS: "Nonsense."]—and I ask my hon. Friends to vote for the Amendment.

Question put, That the Amendment be made:—

The Committee divided: Ayes 143, Noes 183.

Division No. 362.]	AYES	[10.12 p.m.
Armstrong, Ernest	Galpern, Sir Myer	Morris, Alfred (Wythenshawe)
Ashton, Joe	Garrett, W. E.	Morris, Charles R. (Openshaw)
Atkinson, Norman	Gilbert, Dr. John	Mulley, Rt. Hn. Frederick
Barnes, Michael	Gourlay, Harry	Murray, Ronald King
Barnett, Joel	Grant, George (Morpeth)	O'Halloran, Michael
Beaney, Alan	Griffiths, Will (Exchange)	O'Malley, Brian
Benn, Rt. Hn. Anthony Wedgwood	Hamilton, James (Bothwell)	Oram, Bert
Bennett, James (Glasgow, Bridgeton)	Hannan, William (G'gow, Maryhill)	Orme, Stanley
Bidwell, Sydney	Hardy, Peter	Oswald, Thomas
Blenkinsop, Arthur	Harper, Joseph	Owen, Dr. David (Plymouth, Sutton)
Boardman, H. (Leigh)	Harrison, Walter (Wakefield)	Palmer, Arthur
Booth, Albert	Hooson, Emlyn	Pardoe, John
Bradley, Tom	Houghton, Rt. Hn. Douglas	Pavitt, Laurie
Brown, Hugh D. (G'gow, Provan)	Huckfield, Leslie	Peart, Rt. Hn. Fred
Buchanan, Richard (G'gow, Sp'burn)	Hughes, Mark (Durham)	Pentland, Norman
Butler, Mrs. Joyce (Wood Green)	Hughes, Robert (Aberdeen, N.)	Perry, Ernest G.
Campbell, I. (Dunbartonshire, W.)	Hughes, Roy (Newport)	Reed, D. (Sedgefield)
Carmichael, Neil	Hunter, Adam	Roberts, Albert (Normanton)
Carter-Jones, Lewis (Eccies)	Janner, Greville	Rodgers, William (Stockton-on-Tees)
Clark, David (Colne Valley)	Jenkins, Hugh (Putney)	Roper, John
Cocks, Michael (Bristol, S.)	Jenkins, Rt. Hn. Roy (Stechford)	Rose, Paul B.
Cohen, Stanley	John, Brynmor	Ross, Rt. Hn. William (Kilmarnock)
Concannon, J. D.	Johnson, James (K'ston-on-Hull, W.)	Sheldon, Robert (Ashton-under-Lyne)
Conlan, Bernard	Johnson, Walter (Derby, S.)	Shore, Rt. Hn. Peter (Stepney)
Crawshaw, Richard	Jones, Rt. Hn. Sir EIwyn(W.Ham,S.)	Silkin, Rt. Hn. John (Deptford)
Cronin, John	Jones, Gwynoro (Carmarthen)	Silkin, Hn. S. C. (Dulwich)
Dalyell, Tam	Jones, T. Alec (Rhondda, W.)	Sillars, James
Davidson, Arthur	Kaufman, Gerald	Silverman, Julius
Davies, Denzil (Llanelly)	Kelley, Richard	Smith, John (Lanarkshire, N.)
Davies, G. Elfed (Rhondda, E.)	Kerr, Russell	Spearing, Nigel
Davies, Ifor (Gower)	Kinnock, Neil	Spriggs, Leslie
Deakins, Eric	Lambie, David	Stallard, A. W.
Dell, Rt. Hn. Edmund	Lamond, James	Steel, David
Doig, Peter	Leadbitter, Ted	Stewart, Donald (Western Isles)
Douglas, Dick (Stirlingshire, E.)	Lee, Rt. Hn. Frederick	Stoddart, David (Swindon)
Douglas-Mann, Bruce	Lewis, Ron (Carlisle)	Strang, Gavin
Duffy, A. E. P.	Lomas, Kenneth	Swain, Thomas
Edwards, Robert (Bilston)	Lyon, Alexander W. (York)	Taverne, Dick
Edwards, William (Merloneth)	McBride, Neil	Tinn, James
Ellis, Tom	McCartney, Hugh	Torney, Tom
Fisher, Mrs. Doris (B'ham, Ladywood)	McGuire, Michael	Urwin, T. W.
Fitch, Alan (Wigan)	Mackenzie, Gregor	Varley, Eric G.
Fletcher, Raymond (Ilkeston)	Meacher, Michael	Watkins, David
Fletcher, Ted (Darlington)	Mendelson, John	Weitzman, David
Foot, Michael	Milne, Edward (Blyth)	Wells, William (Walsall, N.)
Ford, Ben	Morgan, Elystan (Cardiganshire)
White, James (Glasgow, Pollok)	Wilson, Alexander (Hamilton)	TELLERS FOR THE AYES:
Willey, Rt. Hn. Frederick	Woof, Robert	Mr. William Handing and
Williams, W. T. (Warrington)		Mr. John Golding.
NOES
Adley, Robert	Green, Alan	Owen, Idris (Stockport, N.)
Atkins, Humphrey	Griffiths, Eldon (Bury St. Edmunds)	Page, Graham (Crosby)
Baker, Kenneth (St. Marylebone)	Gummer, Selwyn	Page, John (Harrow, W.)
Baker, W. H. K. (Banff)	Gurden, Harold	Parkinson, Cecil (Enfield, W.)
Beamish, Col. Sir Tufton	Hall, Miss Jean (Keighley)	Percival, Ian
Benyon, W.	Hall, John (Wycombe)	Pike, Miss Mervyn
Berry, Hn. Anthony	Hamilton, Michael (Salisbury)	Pounder, Rafton
Biffen, John	Hannam, John (Exeter)	Powell, Rt. Hn. J. Enoch
Biggs-Davison, John	Harrison, Brian (Maldon)	Price, David (Eastleigh)
Boardman, Tom (Leicester, S.W.)	Harrison, Col. Sir Harwood (Eye)	Proudfoot, Wilfred
Boscawen, Robert	Haselhurst, Alan	Pym, Rt. Hn. Francis
Bowden, Andrew	Hawkins, Paul	Redmond, Robert
Boyd-Carpenter, Rt. Hn. John	Heseltine, Michael	Reed, Laurance (Bolton, E.)
Bray, Ronald	Hicks, Robert	Rees, Peter (Dover)
Brinton, Sir Tatton	Higgins, Terence L.	Rees-Davies, W. R.
Brocklebank-Fowler, Christopher	Hiley, Joseph	Renton, Rt. Hn. Sir David
Brown, Sir Edward (Bath}	Hill, James (Southampton, Test)	Ridsdale, Julian
Bruce-Gardyne, J.	Holland, Philip	Rossi, Hugh (Hornsey)
Buchanan-Smith, Alick (Angus, N&M)	Hordern, Peter	Rost, Peter
Buck, Antony	Hornsby-Smith, Rt. Hn. Dame Patricia	Russell, Sir Ronald
Bullus, Sir Eric	Howell, David (Guildford)	Shaw, Michael (Sc'b'gh & Whitby)
Carlisle, Mark	Hunt, John	Simeons, Charles
Chapman, Sydney	Iremonger, T. L.	Skeet, T. H. H.
Churchill, W. S.	Irvine, Bryant Godman (Rye)	Soref, Harold
Clark, William (Surrey, E.)	Jenkin, Patrick (Woodford)	Speed, Keith
Clarke, Kenneth (Rushcliffe)	Jessel, Toby	Spence, John
Cockeram, Eric	Johnson Smith, G, (E. Grinstead)	Sproat, Iain
Cooke, Robert	Kershaw, Anthony	Stainton, Keith
Cooper, A. E.	Kilfedder, James	Stanbrook, Ivor
Cormack, Patrick	King, Evelyn (Dorset, S.)	Stewart-Smith, D. G. (Belper)
Critchley, Julian	King, Tom (Bridgwater)	Stodart, Anthony (Edinburgh, W.)
Crouch, David	Kinsey, J. R.	Stoddart-Scott, Col. Sir M.
Curran, Charles	Knight, Mrs. Jill	Stuttaford, Dr. Tom
d'Avigdor-Goldsmid, JamesMaj.-Gen.	Knox, David	Taylor, Sir Charles (Eastbourne)
Dean, Paul	Lambton, Antony	Taylor, Frank (Moss Side)
Deedes, Rt. Hn. W. F.	Legge-Bourke, Sir Harry	Taylor, Robert (Croydon, N.W.)
Dixon, Piers	Le Marchant, Spencer	Tebbit, Norman
Edwards, Nicholas (Pembroke)	Lewis, Kenneth (Rutland)	Thomas, John Stradling (Monmouth)
	Luce, R. N.	Thomas, Rt. Hn. Peter (Hendon, S.)
Elliot, Capt. Walter (Carshalton)	MacArthur, Ian	Thompson, Sir Richard (Croydon, S.)
Elliott, R. W. (N'c'tle-upon-Tyne, N.	McLaren, Martin	Trafford, Dr. Anthony
Eyre, Reginald	Maclean, Sir Fitzroy	Trew, Peter
Farr, John	Macmillan, Maurice (Farnham)	Tugendhat, Christopher
Fell, Anthony	McNair-Wilson, Michael	Turton, Rt. Hn. R. H.
Fenner, Mrs. Peggy	McNair-Wilson, Patrick (NewForest)	van Straubenzee, W.
Fidler, Michael	Mather, Carol	Waddington, David
Fisher, Nigel (Surbiton)	Maude, Angus	Walder, David (Clitheroe)
Fletcher-Cooke, Charles	Maxwell-Hyslop, R. J.	Walker-Smith, Rt. Hn. Sir Derek
Fookes, Miss Janet	Meyer, Sir Anthony	Ward, Dame Irene
Fortescue, Tim	Mills, Peter (Torrington)	Warren, Kenneth
Foster, Sir John	Miscampbell, Norman	Weatherill, Bernard
Fox, Marcus	Moate, Roger	White, Roger (Gravesend)
Fraser, Rt. Hn. Hugh (St'fford & Stone)	Molyneaux, James	Whitelaw, Rt. Hn. William
Fry, Peter	Monks, Mrs. Connie	Wiggin, Jerry
Gilmour, Sir John (Fife, E.)	Montgomery, Fergus	Wilkinson, John
Glyn, Dr. Alan	Morgan-Giles, Rear-Adm.	Wolrige-Gordon, Patrick
Godber, Rt. Hn. J. B.	Morrison, Charles (Devizes)	Woodnutt, Mark
Goodhart, Philip	Mudd, David	Wylie, Rt. Hn. N. R.
Goodhew, Victor	Nicholls, Sir Harmar
Gorst, John	Normanton, Tom	TELLERS FOR THE NOES:
Gower, Raymond	Onslow, Cranley
Grant, Anthony (Harrow, C.)	Orr, Capt. L. P. S.	Mr. Jasper More and
Gray, Hamish	Osborn, John	Mr. Hector Monro.

Clause 10 ordered to stand part of the Bill.

To report Progress and ask leave to sit again.—[Mr. Maurice Macmillan.]

Committee report Progress; to sit again Tomorrow.