§ Mr. Dalyell
I beg to move Amendment No. 8, in page 8, line 5, leave out '£700 and £1,000', and insert '£800 and £1,100'.
§ The Temporary Chairman (Captain Walter Elliot)
With this we are to take Amendment No. 9, in page 8, line 5, leave out ' £1,000 ' and insert ' £1,050 '.
§ Mr. Dalyell
I commend the amendment because it means neither more nor 1390 less than it says. After the discussion that took place yesterday with the Financial Secretary on the tabling of amendments that may have been probing amendments and may have been legitimate amendments, I ask for a certain sympathy for the amendment because we mean it exactly as it is printed on the Paper.
In introducing the amendment I say simply, first, that some of us think that the tax threshold should have been increased in any event. I offer, secondly, another reflection which has come out on top in some discussion with the Pre-Retirement Association and its secretary Mr. Lorinz. All hon. Members must know this from their personal experience 1391 in the House. When people are working hard, or are supposed to be working hard on a Friday night when they are 65, it is a considerable shock to them on the Monday morning when they are retired. We must study the statistics of those who die months, if not a year or two, after retirement.
There is perhaps an explanation of this. Suddenly the life style of these people changes entirely. The fact that their life style changes entirely is not wholly to do with finance but is partly to do with finance. It is partly to do with the psychological feeling that they no longer have the wherewithal to pursue the life and hobbies to which they have been used.
Anything that goes in the direction of giving those with fairly modest incomes a feeling that by retiring and by their job having ended they are perhaps not so badly off as they might think themselves to be is in the direction of the good.
I therefore base my case generally on the fact that in society there is far too much of a gap between work and retirement and that anything that goes in the direction of making people feel at the time they retire that they have the wherewithal to continue the life they have been used to and to exploit certain hobbies is in the direction of the good. That is the philosophical basis of the amendment.
Getting down to brass tacks, I always like taking the strongest arguments of those who reject a proposition. In Standing Committee on the Finance Bill last year the Minister of State said this:The proposed amendment, far from saving work, would add materially to the pressures on the Inland Revenue at a time when their resources will be very stretched indeed by work on unification. It is impossible for them to undertake the additional work involved in the exemption of these pensions."—[OFFICIAL REPORT, Standing Committee E, 19th June 1972; c. 1189.]Is that much more work involved in increasing a threshold along the lines which were suggested last year and which we suggest this year?
On 12th July 1972 the Chief Secretary, in rejecting a roughly similar amendment, said this:I want to make three points in that connection. Many people of pensionable age who have not retired—my hon. Friend referred to some—and who are therefore not drawing the National Insurance pension and therefore 1392 derive no benefit from this clause, could justly be aggrieved if people of the same age who had retired and had pensions—and in many ways exactly similar incomes—were allowed tax reliefs. We have to face that this year, but we could not regard it as a permanent feature of the system.I do not believe that those who continue in work after age 65 are as a group so ungenerous as to say "We should deny tax advantages to those who perforce have been required to retire". If that is the Chief Secretary's argument, it is an uncharacteristically weak one. If it is true that some people say "They are getting money and we are not getting it", I do not believe that the majority of those who go on working will crib simply because of tax advantages for those who are over 65.
The second reason given by the Chief Secretary was this:the effect of giving this tax relief this year is to give relief to pensioners who have enough income to pay tax, without being able to do anything for the people on much lower incomes who are below the tax threshold. That was certainly not the objective of the exemption, but it happens to be an unavoidable consequence When I say that this year the age exemption limit for a married couple is £929 "—I accept that it has been increased this year—while the national insurance pension for a married couple is £504 one sees that the pensioner must have considerably more than £8 a week in income from pay and pension before he can benefit from this temporary concession.If the argument is to be that, by helping the category we are discussing, we are not helping the worst-off, I counter that by saying that there are other ways of helping the worst-off. The contrast is not between those whom we are trying to help and those who are less well off than they are. The contrast surely could equally well be between for example, those whom we are trying to help in the amendment and those who benefit from disaggregated children's incomes or many of the other give-aways which we discussed in Standing Committee last year and which are being continued this year.
If we are talking about contrasts, the contrast is not necessarily between those whom we seek to help in the amendment and those who are even worse off as pensioners than they are. If contrasts are to be drawn as an argument for rejecting the amendment, that is not necessarily the best contrast that can be drawn.
1393 The Chief Secretary continued:Thirdly, the general principle that we apply is that if resources are available to improve the lot of the pensioners … it is not necessarily the most effective way to do it through the tax system, because that can, by definition, benefit only those who are within the tax net. Instead, it is better to use the resources to uprate benefits, because that helps all—within the tax net or not."—[OFFICIAL REPORT, 12th July 1972; Vol. 840, c. 1788.]As a general argument I find that quite attractive, but on the basis of that argument why have any exemption? If the third reason given by the Chief Secretary last year is valid, why have any exemption? We all know why we have exemptions. In a balanced system which we hope is reasonably just, this kind of exemption is thought to be helpful and a humane form of operating the tax system.
If this proposal is rejected on the grounds that it is not the best of all possible worlds, it may be a case of where the best is the enemy of the good. If I have spent time on the reasons why I think that the Treasury will reject the amendment it is because I hope that serious consideration will be given, perhaps on Report, to the proposal, which I believe is a just one.
§ Sir Robin Turton (Thirsk and Malton)
I hesitated a good deal before tabling Amendment No. 9, which seeks to increase £1,000 to £1,050. The Government have a very good record of increasing retirement pensions every year and also—again every year—dealing with tax exemption limits, in strong contrast with their predecessors, who raised the pension only twice in six years and in only three of those six years did they alter the tax exemption limits.
I want the Government to explain the line they have taken in the last two Finance Bills where they have increased the exemption limits for the married proportionately far less than for the single. This has resulted in the age exemption working to the advantage of the single as opposed to the married and has created considerable hardship.
Under previous Finance Acts, the margin for the married household over the single was 50 per cent. For example, the 1971 Finance Act put up the margin for the single person by £26 and for the married couple by £39. In earlier years, the difference between the increase of margin for the married household and for the 1394 single was sometimes 50 per cent. and sometimes 60 per cent. Last year, however, the increase was exactly the same for married and single households, £104. This year, it is £66 for the single and £71 for the married.
We are dealing here with the person over 65—I had better declare an interest, since I happen to be in that age group—and not, as the hon. Member for West Lothian (Mr. Dalyell) said, just those in retirement. If they receive an occupational pension, like an Army pension, in addition to their retirement pension, they come into this consideration. I find that increasing numbers of my constituents, particularly those who served in the Army and were exempted from paying tax, are being brought into the tax net if they are married, whereas they escape if they are single. This is an injustice which the Committee should correct, if possible today.
I would sum up this picture by comparing the position of single and married pensioner households in 1965 and today In 1965 a single person had a pension of £204 less than the exemption limit, so he could almost have had an additional occupational pension of roughly the same amount as his retirement pension. Under this Budget the single pensioner's pension leaves him £313 below the limit, which is more than before, so again he could have an occupational pension of roughly the same size as his retirement pension.
A different picture emerges from a study of the two-pensioner household. In 1965 the margin for married pensioners was £209 over the two pensions. In this Budget the margin is reduced from £205 to £194. Bearing in mind the difference in purchasing power between 1965 and 1973, one can see that considerable hardship is caused to these households. That is why I ask my right hon. Friend to consider this matter. Under the pension arrangements, the two-pensioner household will have increases this year of £104, yet the increase in exemption limit is only £71. That, at first sight, suggests hardship, bearing in mind that most of these households are drawing not just the National Insurance pension but also an occupational pension of some kind.
I would ask my right hon. Friend to consider increasing the exemption limit to bring it back, proportionately, to the level 1395 which obtained under Finance Acts before last year. That would put an extra £50 on the married person's pension.
The Labour amendment would have the reverse effect. By giving the extra £100 to both the single pensioner and the married household, it would create a greater hardship than before for the latter. The single pensioner would have a much bigger margin than the married pensioner, and that cannot be commended.
There is a general case for the Government to reconsider the age exemption limits. It is wrong that the older people who have had a much lower rate of earnings in the past and have already paid their taxes should have to pay tax after retirement on earnings and savings which come to very little.
I had great sympathy with the hon. Member for West Lothian when he referred to the common feeling of the elderly pensioner that he is being unjustly treated when the average earnings are so much higher than these age exemption limits, yet he still has to pay his tax of £1 or 50p a week from a meagre income. There is a strong case for saying that the national retirement pension should be free of tax. That would be a great help to the older people, bearing in mind now that the contribution is no longer deductible.
I agree that that is not the proposal that we are considering, but I would ask the Government, first, to give an increase to the married pensioner household somewhere near the figure of £50 which I am suggesting, either now or on Report. Second, I hope that before the next Budget the Government will look at the whole question of the taxation of the elderly and of pensioners. Considerable hardship is involved. People are moving into the tax net who before escaped. This is wrong, bearing in mind how much harder it is for people to live on their incomes in the face of higher prices. I hope that in a future Budget the Chancellor will make a radical alteration to the taxation of elderly peole.
§ Mr. George Cunningham (Islington, South-West)
I should like to tell the Father of the House, the right hon. Member for Thirsk and Malton (Sir Robin Turton), that there is one respect in which the feature he is now complaining about 1396 will be infinitely worse if the Government get their way with their proposals. I am thinking of the taxation position of the proposed new State reserve pension scheme proposed in the Social Security Bill. It is the Government's dishonourable intention to make the pension from that scheme taxable, although contributions to it will not attract tax relief.
The right hon. Gentleman may have noticed that by the good sense of hon. Members on both sides of that Committee an amendment of mine was carried to change that situation. I hope that he will give serious consideration to stopping the Government from getting rid of that amendment when the matter comes before the House, in view of the principles which he has just enunciated.
§ Dame Irene Ward (Tynemouth)
I should like first to make a personal comment about this proposal. I have a genuine desire that my right hon. Friend the Chancellor should deal with this matter. This exemption from taxation was put into the Finance Bill many years ago by Sir Godfrey Nicholson and myself. I have always taken a great interest in those living on small fixed incomes. It was one of my first interests. Sir Godfrey Nicholson was a Member of Parliament at the time. We had this idea and collected together some Members of Parliament to form a committee.
I cannot remember his name but we had a very nice Chancellor at the time. We had many deputations and arguments, but finally we managed to get this provision into the Finance Bill. We did not do it by an amendment or by discussion in the House of Commons, or by voting for it or anything like that. We simply persuaded the Chancellor that it was a very good move forward. It shows how long I have been a Member of the House of Commons that I cannot remember when we did this. However, we were very grateful to the then Chancellor.
I have always been very proud of the fact that we had that great success under a Conservative Government. Naturally, today I am supporting the amendment of my right hon. Friend the Member for Thirsk and Malton (Sir Robin Turton) and that of the hon. Member for West Lothian (Mr. Dalyell). I am not very good at figures. At one time my right hon. Friend was Minister of Pensions. 1397 He probably knows more about the situation than the Treasury. Although very often I find the Treasury helpful, and although I am devoted to all the Treasury Ministers and the Chancellor in particular, I find that sometimes those who advise the Chancellor do not know as much about life as do my right hon. Friend and I.
The Treasury has made a move forward but has not got its figures quite right. It is exciting to know that occasionally the Treasury can make a mistake. I do not believe that the Treasury meant to do this. It was intended that the individual, man or woman, trying to live on a small fixed income should have the benefit of this little portion of the Finance Bill which Sir Godfrey Nicholson and I managed to insert with such pleasure and pride many years ago. My right hon. Friend the Member for Thirsk and Malton is much better at calculating figures than I am. I should be very upset if we did not get a suitable reply from the Government. I could not support with my vote the doing of anything which detracted from the achievement of so many years ago.
In the House of Commons one wins only a few battles, and it generally takes about 10 years to win anything. But when one does so, one is proud. Without getting into any serious difficulty, the Treasury can deal with the point which has been made so eloquently and with such sound common sense by my right hon. Friend. Fortunately, I know enough about Government machinery to know that it is unlikely that the Treasury Minister will be able tonight to commend my right hon. Friend and to say that the Government realise the emotional interest which I have in this matter and will, therefore, put the matter right.
I was very proud that we had made this provision for those living on small fixed incomes. But it must be fair and right. It looks as though something has gone wrong. Ministers will not be able to say now that they will accept my right hon. Friend's amendment. But I shall be upset if they do not recognise their mistake and are not prepared to correct it.
I assume that the Minister of State will say "Thank you very much" to my right hon. Friend and will be grateful to the hon. Member for Islington, South-West (Mr. George Cunningham), who spoke 1398 about what has happened in a particular Committee and what he has been able to do.
Looking after those living on small fixed incomes is not a party matter. We all want to do the best we can. Neither of the major parties has more soul than the other, but sometimes the Conservative Party is better able to provide the money because it has a better economic policy. That is my view, and that has kept me in the House of Commons for 39 years. In my part of the world people must like Conservative Governments and their economic policies.
This is a very small but very important matter. I try to understand the Chancellor when he is talking about big overall problems. Sometimes it is difficult to get Treasury Ministers to deal with small points. In relation to human happiness and making just decisions, it is of as much importance to get the small things right as the large things. I hope that the Government will not let me down.
The present Treasury Ministers were not Members of Parliament in the past of which I have been speaking. That concerns only my right hon. Friend the Member for Thirsk and Malton and myself. My right hon. Friend is the Father of the House and has watched this matter all along. He knows about the problem of trying to help those living on small fixed incomes. I do not expect Treasury Ministers repeatedly to refuse all my requests. They do not always do what I want. However, I hope that the Government will look at this difficulty which has been so cleverly outlined by my right hon. Friend and, when we come to Report stage, make everyone happy so that those living on small fixed incomes may benefit by having got something from the Treasury. That will be wonderful.
The Treasury must feel just as warmhearted about these people as the Chancellor who originally inserted the provision. In those days it was even more difficult to persuade Chancellors to examine the position of those on small fixed incomes. The present Ministers on the Treasury Bench can show me how good they are by saying that they will adopt the new arrangement mentioned by my right hon. Friend. I should be heartbroken if we did not get that promise. I shall certainly not vote for 1399 doing anything which the Treasury did not mean to do or anything which would hurt this little part of the Finance Bill. This matter has caused me concern for many years, even though I cannot remember the name of the Chancellor who was kind enough to introduce it.
§ Mr. Horam
I should like to intervene more briefly than did the hon. Member for Tynemouth (Dame Irene Ward) because I have just received a letter from one of my constituents which expresses in a dignified way the very strong feelings which exist on this point.
My constituent, a lady, says:Dear Mr. Horam, As a constituent of Gateshead West I am writing to you on behalf of many of your constituents who are in the same position as myself. I am a widow who like other members of the teaching profession paid into a Superannuation Fund for many years. Now we find on retirement that we are taxed on both our Retirement Pension and Superannuation. As an example I quote my own position. Each month I find that from my Superannuation of £43.22 the sum of £12.73 is being deducted in tax. The result is that I am worse off financially than those who draw Retirement Pension plus Social Security and all the extras this carries with it. I would ask you to do your best to bring this anomaly most forcibly to the notice of the Minister of Pensions, and ask him to bring this to an end and to give those like myself who saved for their old age a 'fair crack of the whip'.I do not intend to go into all the arguments that have been advanced but merely to quote that letter. It expresses in very human terms the feeling there is on this point.
§ The Minister of State, Treasury (Mr. John Nott)
I am sure that the whole House will agree with the sentiments which were expressed by the hon. Member for West Lothian (Mr. Dalyell) when he moved the amendment. All of us on both sides of the Committee agree with him when he says that the country as a whole has an obligation to those who reach retirement age. I hope to go on to show very briefly that I believe that the Government have met that obligation over the past few years.
But, before I give some of the reasons why I feel that the Government have done a lot in this year's Budget to help the pensioner, I am sure that pensioners throughout the country should know, if they do not already, of the great efforts 1400 that my hon. Friend the Member for Tynemouth (Dame Irene Ward) has made over many years on their behalf. We in this House certainly recognise the energetic way that she has spoken up on their behalf each year in the Budget debates. The same applies to my right hon. Friend the Member for Thirsk and Malton (Sir Robin Turton), who I know has also supported or spoken for pensioners in these debates.
Although my right hon. Friend the Chancellor was not able to propose any general increase in tax allowances this year the special claims of the elderly have once again been recognised by raising the income limits for age exemption. This is the third increase in the age exemption limits to be made in the last three years. As my hon. Friend the Chief Secretary pointed out on Second Reading, this represents an increase, taking the three years together, for a single person of over 45 per cent. in money terms and nearly 20 per cent. in real terms since June 1970. I am referring to the tax threshold for the elderly.
During our period of office the tax threshold for the elderly single person has been raised from £9.13 to £13.46 per week. The age exemption gives elderly taxpayers a higher tax threshold than younger people. In general, the single person starts to pay tax when his income reaches £595 a year and a married couple at an income of £775 a year. Under the proposals this year the corresponding figures for elderly people will be £700 for the single person and £1,000 for the married couple. In other words, we are giving the elderly single person an advantage of £105 and a married couple one of £225 compared with younger people. So, there is already in our tax system a fairly wide margin which fulfils the obligation which the hon. Member for West Lothian mentioned in his opening remarks.
I remember very well the debates we had on this subject last year when many of my hon. Friends and many Labour Members spoke up for the pensioners. I remember particularly that my hon. Friend the Member for Worcestershire, South (Sir G. Nabarro) raised the question of irregular figures which existed in the past for age exemption limits. He described these irregular figures as "potty"—I think that was the word he used. He also recommended that the 1401 threshold for income tax should be raised to £675 for a single person and £1,000 for a married couple. This year we have followed his advice implicitly in regard to the married couple, but we think that a more regular figure of £700 is even better than his irregular figure of £675.
One consequence of last year's changes in personal allowances was that the tax threshold of a single elderly person was only £42 above that of a younger taxpayer in similar circumstances, and that of a married couple was £157 above. Arguably this was too narrow a difference between elderly persons' age exemption and the ordinary personal allowance. The new limits will restore the position very nearly to what it was in 1971–72.
So the limits proposed in the Bill give elderly people a substantial tax advantage. The starting point for an elderly married couple is now slightly higher than the point at which a married couple with one child under 11 begin to pay tax. Their starting point is £995. I give these figures only to illustrate that we accept the points made by the hon. Member for West Lothian when he moved the amendment.
I must refer to the point made by my right hon. Friend the Member for Thirsk and Malton. He said that over the years the margin between the age exemption for the single person and the age exemption for the married couple had narrowed. I take his point. It was an accurate comment, of course, but this derives from the rise in pensions. The age exemption limits, as my right hon. Friend knows, are, broadly speaking, intended to reflect the increase in the pension for both single and married persons. I do not wish in any way to avoid answering his point, but in a way his comments are perhaps more appropriately addressed to my right hon. Friend the Secretary of State for Social Services. The age exemption limits follow very closely and derive from the increase in the single and married persons' pension.
In 1970–71 the single person could have an income of £215 a year over and above the State taxable pension before he began to pay tax. This year such a person will be able to have an income of £322 above the State pension before coming into the tax bracket. In 1970–71 a married couple could have had a joint income of £319 above the 1402 State pension before beginning to pay tax. This year, 1973–74, the married couple will be able to have an income of £391 above the State pension before coming into the tax bracket.
I take my right hon. Friend's point that the margin between the single and married age exemption allowance has over the years tended to narrow, but the age exemption limits are intended broadly to cover the increase in the pension of the single and married person.
§ [Miss HARVIE ANDERSON in the Chair]
§ Sir Robin Turton
In the old days when the pension was put up it was increased 50 per cent. more for the married couple than the single person. Now the amount of the rise is exactly the same. The increase in pension is still 50 per cent. more for a married couple than a single person in the case of a one-pensioner household, and in the case of a two-pensioner household it is exactly 100 per cent. more. What has happened is quite contrary to the argument which my hon. Friend is addressing to the Committee.
§ Mr. Nott
My right hon. Friend referred to 1972–73 and said that the increase was exactly £104 for both—I think I am correct in saying that—and was exactly comparable. I am sure that my right hon. Friend will remember that we were in the process last year of re-coding for unification. It was for that reason that the increase in the State pension last year did not bear tax. The figures which were quoted for 1972–73 were unusual in that respect. I hope that I have made it clear to my right hon. Friend that the age exemption limits follow broadly the increase in the State pension which is paid to single and married persons. My right hon. Friend has made an accurate and correct point, but he must address it to my right hon. Friend the Secretary of State for Social Services, who is ultimately responsible for deciding what the increase in the State pension each year should be.
§ Dame Irene Ward
The point which my right hon. Friend the Member for Thirsk and Malton (Sir Robin Turton) and I raised did not relate to social security. In the old days there was no Department dealing with social security. We want 1403 to do something for those who are living on small, fixed incomes. The idea which my hon. Friend is putting forward is new. He is putting his argument forward with great Treasury skill but he is not carrying out what Sir Godfrey and I persuaded the then Chancellor to do. It seems a pity to go back on something which was not in any way related to pensions. We persuaded the Chancellor of the day to help those on small fixed incomes. I hope that my hon. Friend will not hang on to pensions now. They have nothing to do with the matter.
§ Mr. Nott
I appreciate the point that my hon. Friend is making. However, I must tell her that in 1970–71 a married couple were able to earn £319 above the State pension before coming into the tax bracket. In 1973–74 a married couple will be able to earn £391 over and above the State pension before coming into the tax bracket. That is what led me to say that in the three Budgets which we have had since coming into office we have raised the tax threshold by 20 per cent. in real terms. That has been a considerable achievement.
The raising of the tax threshold—we have raised it considerably in real terms —cannot be divorced from all the other measures which the Government have taken to benefit pensioners. We have introduced an annual review of pensions, and there have been substantial increases in the real value of the pension since we took office. The pension will have been increased in just over three years by 55 per cent. in cash terms. In real terms over the same period the pension will have been increased by almost twice as much as the increase in prices. In the current year, with the pension uprating, pensioners will be sharing in the increased prosperity of the nation in accordance with the undertaking given at the time of the tripartite talks.
We are increasing, too, the supplementary pension. A supplementary pensioner living alone will be entitled from October to £8.15 a week plus rent and rates. I am sure that my hon. Friend will appreciate the many excellent provisions which the Government have made to benefit the position of pensioners claiming social security.
§ Sir Robin Turton
Will my hon. Friend answer the point? The Government have raised the single person's pension by £52 a year. They have raised the tax exemption margin by £66 a year. They have put up the married person's pension by £83 a year and put up the tax exemption margin for the married person by £71. That, in a nutshell, is what the argument is about. That is contrary to what my hon. Friend has been saying. Will he consider this matter before Report and try to put it right?
§ Mr. Nott
I take the point which my right hon. Friend is now making. There is a slight discrepancy, because we felt that it was simpler this year to talk in terms of £1,000 for the age exemption limit rather than the sort of irregular figure to which my hon. Friend the Member for Worcestershire, South referred last year. It was for that simple reason that we chose the regular figures of £700 and £1,000. We considered that they were simple and clear and would enable the pensioner to understand, rather than the exactly comparable figure of £1,035. [HON. MEMBERS: "Oh."] Opposition hon. Members are laughing, but there is nothing in their record which entitles them to do so. Pensions have risen in real terms far faster while we have been in office than when hon. Members opposite were in office.
For the reasons that I have given, I ask my right hon. Friend not to press his amendment. We have substantially raised the age exemption limit this year. My right hon. Friend's point is valid that the exactly comparable figure would be £1,035 and not £1,000. We felt that it was right to go for £700 and £1,000, taking into account the very substantial increase which has been proposed for the October uprating.
This year we went for a neutral Budget. My right hon. Friend the Chancellor of the Exchequer decided to concentrate most of the tax relief available on the zero-rating of further food items. In a year when personal allowances generally were not raised, we felt that we were being fair to pensioners in proposing a substantial increase in the age exemption limits.
§ Dame Irene Ward
I hope that my hon. Friend will forgive me if I point out that 1405 people living on small fixed incomes are not interested in making matters simple for the Treasury. I am not interested in making things simple for the Treasury either. The Treasury probably has the best mathematicians in the world. I agree with and am proud of all that the Government have done, but this is a different matter. It is not fair to argue that the decision was taken so as to make things simple for the Treasury. If we are going to consider the matter in that way, I want to make things as difficult as possible for it. I cannot understand my own income tax, but that does not matter. My hon. Friend should not argue as he is doing. He should produce something better than that.
§ Mr. Nott
Last year we were criticised for the irregular figure which had been taken for the raising of the age exemption limit. Many of my hon. Friends criticised us for this and said it was difficult for pensioners to understand the irregular figure. If my hon. Friend reads the debate on the subject last year, she will find that that was widely said, and this year we took full account of it and decided that a round figure of £1,000 was the most convenient. It makes no difference to the administrative side. We simply thought it better to have regular figures of £700 and £1,000, and that is why we did it. As my hon. Friend knows so well, the real value of the pension has increased substantially in the past few years and the age exemption limits have been raised, while the tax threshold for the elderly has over three Budgets risen by 20 per cent. in real terms. That is a substantial achievement, and I would hope that, in that spirit, my hon. Friends will support us.
§ Mr. Sheldon
We welcome the amendment moved by my hon. Friend the Member for West Lothian (Mr. Dalyell). It is always a pleasure to hear him in 1406 the Committee, and he moved this important amendment very well.
One of the things that all Oppositions get is a whole sheaf of letters on these matters, which we sift through, as indeed previous Oppositions have sifted through similar letters in their time. One of the things that has come repeatedly to our attention is the great dissatisfaction arising from the ending of the two-ninths earned income allowance in a situation such as that which I shall now describe. I shall quote a passage from only one letter but one could multiply this example many times.
The writer states:I am 68 years of age and in addition to the national retirement pension I receive a superannuation allowance of a little over £10 a week in respect of 47 years service with British Railways. The possession of these two pensions means that I am liable to income tax for the current financial year. I shall have to pay approximately £20. For the next financial year 1973–74 I was astounded to find that due to the implementation of the Government's new income tax compulations my liability will jump to £63".Of course, we know that this is due to the abolition of the two-ninths earned income relief.
That letter, I believe, puts the matter into perspective and shows that the great reform of the Chancellor has hit at certain people in our society who are not so well placed to withstand these assaults on their standard of living, having nothing to hope for in the future but facing the great problems that all old people face. As my hon. Friend the Member for West Lothian pointed out, these problems are associated with life-style changes and the absence of any income from unknown sources and the problems of not having any future income to look forward to because of their retirement.
§ 7.45 p.m.
§ Mr. Nott
The hon. Member is perfectly well aware that the first £2,000 of investment income will in future be treated as earned income. For him to stand up and criticise us, when we have made this most important reform which will be of great benefit to many elderly people living on small incomes, is quite ridiculous.
§ Mr. Sheldon
But the Minister has failed to understand that no provision has been made for this pension. Of course we know about investment income, but this is a case of someone living on a 1407 second pension and for which she will not get the two-ninths earned income relief which might have been available before. This is the problem that many of us see in the dozens of letters we have received.
I find astonishing the argument used by the hon. Gentleman when he adheres to the figures that the Treasury has selected this year as being simple. He says that rather than give the extra money the Chancellor wanted to maintain the simplicity of rather less money. The hon. Member for Tynemouth (Dame Irene Ward) and the right hon. Member for Thirsk and Malton (Sir Robin Turton) were among those who expressed their astonishment at a kind of simplicity which involves giving less money to those concerned. The hon. Gentleman pointed out that, rather than give the extra money, he would give people the great benefit of the sweets and cheese straws which the Budget has provided for them. I do not think that anybody will be under any misapprehension that this substitute will satisfy old people in our midst. Over the years we know that many people have suffered from low fixed incomes, and year by year when the Conservatives were in Opposition they used to rail at the Labour Government for lack of concern for old people.
The way in which the Government are now treating these people is particularly saddening because so many of their difficulties are directly related to the problems of inflation which have been created by the Government. The Government must understand that Amendment No. 8 is needed to take account of the inflation which these old people suffer from more than anybody else in our society today, and to take account of their constant worries that they will have no new sources of income and that all they can look forward to is a pension which is likely to decline in value with inflation caused by the policies of the Government. The capital of modest means which these people might have must also decline in value as they draw from it and as inflation whittles it down further.
§ would like to send the letter to me, I will give him an answer and explain in detail why his example is wrong. As he knows perfectly well, we have raised the tax threshold substantially in three Budgets. It is raised again in this year's Budget. The charges the hon. Gentleman is making are not accurate. I shall be happy to correct the statements about the case to which he has referred if he will send details to me.
§ Mr. Sheldon
I will with great pleasure send it to the hon. Gentleman for a full examination. But I was not basing my case on that one constituent. All of us have received many letters—the hon. Gentleman must have received some of them —expressing great dissatisfaction at the way in which those with more than one pension, approaching retirement age or in retirement, suffer as a result of the Government's actions.
In pressing the amendment we must point out that it is closely allied to the inflation caused by the Government. The main sufferers tend to be those on fixed incomes that we have been discussing. The Government have created the inflation. We are trying to protect those who are suffering most from it. Accordingly 1 am sure that my right hon. and hon. Friends will support me in the Division Lobby.
§ Mr. Dalyell
There are times when Governments would do well to listen to what is said in the House of Commons, and this is one of those occasions.
The Minister of State courteously invited me to withdraw the amendment. The boot is rather on the other foot: we should invite him to discuss with the Chief Secretary and the Chancellor whether something can be done on Report. I would not even wish to hold them to doing anything definite. But the whole tenor of the debate, in the contributions not only of Labour Members but of Conservative Members, has shown the situation to be less than satisfactory. It is up to the Government to say "We shall look at it before Report".
§ Question put, That the amendment be made: —
§ The Committee divided: Ayes 105, Noes 142.1411
|Division No. 106]||AYES||[7.53 p.m.|
|Armstrong, Ernest||Barnett, Joel (Heywood and Royton)||Blenkinsop, Arthur|
|Barnett, Guy (Greenwich)||Bidwell, Sydney||Booth, Albert|
|Broughton, Sir Alfred||Harper, Joseph||Oram, Bert|
|Brown, Hugh D. (G'gow, Provan)||Harrison, Walter (Wakefield)||Oswald, Thomas|
|Brown, Ronald (Shoreditch & F'bury)||Healey, Rt. Hn. Denis||Padley, Walter|
|Buchanan, Richard (G'gow, Sp'burn)||Hooson, Emlyn||Pardoe, John|
|Campbell, I. (Dunbartonshire, W.)||Horam, John||Parker, John (Dagenham)|
|Clark, David (Colne Valley)||Houghton, Rt. Hn. Douglas||Peart, Rt. Hn. Fred|
|Cohen, Stanley||Hughes, Robert (Aberdeen, N.)||Prentice, Rt. Hn. Reg.|
|Corbet, Mrs. Freda||Janner, Greville||Probert, Arthur|
|Cox, Thomas (Wandsworth, C.)||John, Brynmor||Reed, D. (Sedgefield)|
|Dalyell, Tam||Johnson, Walter (Derby, S.)||Roberts,Rt.Hn.Goronwy(Caernarvon)|
|Davies, Denzil (Llanelly)||Jones, Dan (Burnley)||Roderick, Caerwyn E.(Brc'n&R'dnor)|
|Davis, Clinton (Hackney, C.)||Jones, Gwynoro (Carmarthen)||Rodgers, William (Stockton-on-Tees)|
|Davis Terry (Bromsgrove)||Jones, T. Alec (Rhondda, W.)||Sheldon, Robert (Ashton-under-Lyne)|
|Deakins, Eric||Kaufman, Gerald||Short, Rt. Hn. Edward (N'c'tle-u-Tyne)|
|Dell, Rt.. Hn. Edmund||Kelley, Richard||Silkin, Hn. S. C. (Dulwich)|
|Dempsey, James||Kinnock, Neil||Sillars, James|
|Lawson, George||Smith, John (Lanarkshire, N.)|
|Doig, Peter||Lee, Rt. Hn. Frederick||Stoddart, David (Swindon)|
|Duffy, A. E. P.||Lomas, Kenneth||Strang, Gavin|
|Eadie, Alex||Loughlin, Charles||Summerskill, Hn. Dr. Shirley|
|Edeiman, Maurice||Lyons, Edward (Bradford, E.)|
|Ellis, Tom||McGuire, Michael||Tornery, Tom|
|Ewing, Harry||Machin, George||Urwin, T. W.|
|Variey, Eric G.|
|Faulds, Andrew||Mackenzie, Gregor||Walden, Brian (B' m'ham, All Saints)|
|Fernyhough, Rt. Hn. E.||McMillan, Tom (Glasgow, C.)||Walker, Harold (Doncaster)|
|Foot, Michael||Mahon, Simon (Bootle)||Wallace George|
|Ford, Ben||Marquand, David||Weitzman David|
|Freeson, Reginald||Marshall, Dr. Edmund||Wells, William (Walsall, N.)|
|Galpern, Sir Myer||Mason, Rt. Hn. Roy||Williams, W. T. (Warrington)|
|Gilbert, Dr. John||Mellish, Rt. Hn. Robert||Woof, Robert|
|Grant, George (Morpeth)||Mendelson, John|
|Grant, John D. (Islington, E.)||Mikardo, Ian||TELLERS FOR THE AYES:|
|Hamilton, William (Fife, W.)||Millan, Bruce||Mr. Michael Cocks and|
|Hamling, William||Miller, Dr. M. S.||Mr. James Hamilton.|
|Hannan, William (G'gow, Maryhill)||Mitchell, R. C. (S'hampton, Itchen)|
|Astor, John||Hamilton, Michael (Salisbury)||Morgan, Geraint (Denbigh)|
|Atkins, Humphrey||Hannam, John (Exeter)||Morrison, Charles|
|Baker, W. H. K. (Banff)||Harrison, Brian (Maldon)||Mudd, David|
|Bell, Ronald||Harrison, Col. Sir Harwood (Eye)||Murton, Oscar|
|Benyon, W.||Haselhurst, Alan||Neave, Airey|
|Biffen, John||Hawkins, Paul||Noble, Rt. Hn. Michael|
|Biggs-Davison, John||Hicks, Robert||Normanton, Tom|
|Boscawen, Hn. Robert||Higgins, Terence L.||[...]ott, John|
|Bowden, Andrew||Hiley, Joseph||Onslow, Cranley|
|Brinton, Sir Tatton||Hill, John E. B. (Norfolk, S.)||Oppenheim, Mrs. Sally|
|Bruce-Gardyne, J.||Hill, James (Southampton, Test)||Owen, Idris (Stockport, N.)|
|Bryan, Sir Paul||Holt, Miss Mary||Page, Rt. Hn. Graham (Crosby)|
|Burden, F. A.||Hornby, Richard||Powell, Rt. Hn. J. Enoch|
|Chapman, Sydney||Hornsby-Smith, Rt. Hn. Dame Patricia||Proudfoot, Wilfred|
|Churchill, W. S.||Howell, David (Guildford)||Pym, Rt. Hn. Francis|
|Clark, William (Surrey, E.)||Hutchison Michael Clark||Quennell, Miss J. M.|
|Clarke, Kenneth (Rushcliffe)||Hutchison, Michael Clark||Raison, Timothy|
|Iremonger, T. L.|
|Clegg, Walter||James David||Ramsden, Rt. Hn. James|
|Cockeram, Eric||Jenkin, Patrick (Woodford)||Reed, Laurance (Bolton, E.)|
|Cooke, Robert||Kellett-Bowman, Mrs. Elaine||Rees, Peter (Dover)|
|Coombs, Derek||King, Evelyn (Dorset, S.)||Rees-Davies, W. R.|
|Corfield, Rt. Hn. Sir Frederick||King, Tom (Bridgwater)||Rhys Williams, Sir Brandon|
|Costain, A. P.||Kinsey, J. R.||Ridley, Hn. Nicholas|
|d'Avigdor-Goldsmid, Maj.-Gen. Jack||Knight, Mrs. Jill||Ridsdale, Julian|
|Drayson, G. B.||Knox, David||Roberts, Michael (Cardiff, N.)|
|du Cann, Rt. Hn. Edward||Langford-Holt. Sir John||Rodgers, Sir John (Sevenoaks)|
|Elliott, R. W. (N'c'tle-upon-Tyne, N.)||Le Marchant, Spencer||Russell, Sir Ronald|
|Eyre, Reginald||Lloyd, Ian (P'tsm'th, Langstone)||Shaw, Michael (Sc'b'gh & Whitby)|
|Farr, John||Luce, R. N.||Shelton, William (Clapham)|
|Fenner, Mrs. Peggy||McCrindle, R. A.||Simeons, Charles|
|Fidler, Michael||McLaren, Martin||Sinclair, Sir George|
|Finsberg, Geoffrey (Hampstead)||McMaster Stanley||Skeet, T. H. H.|
|Fisher, Nigel (Surbiton)||McNair-Wilson Michael||Speed, Keith|
|Fookes, Miss Janet||Marten, Neil||Spence, John|
|Fortescue, Tim||Mather, Carol||Sproat, Iain|
|Fowler, Norman||Mawby, Ray||Stanbrook, Ivor|
|Fox, Marcus||Maxwell-Hyslop, R. J.||Stewart-Smith, Geoffrey (Belper)|
|Goodhew, Victor||Mills, Stratton (Belfast, N.)||Taylor,Edward M.(G'gow,Cathcart)|
|Gower, Raymond||Mitchell,Lt.-Col.C.(Aberdeenshire, W)||Taylor, Frank (Moss Side)|
|Grant, Anthony (Harrow, C.)||Mitchell, David (Basingstoke)||Tebbit, Norman|
|Green, Alan||Moate, Roger||Thomas, John Stradling (Monmouth)|
|Grieve, Percy||Molyneaux, James||Thompson, Sir Richard (Croydon, S.)|
|Grylls, Michael||Money, Ernie||Trew, Peter|
|Gurden, Harold||Monks, Mrs. Connie||Tugendhat, Christopher|
|Hall, John (Wycombe)||Monro, Hector||Walder, David (Clitheroe)|
|Weatherill, Bernard||Wolrige-Gordon, Patrick||TELLERS FOR THF NOES:|
|White, Roger (Gravesend)||Wylie, Rt. Hn. N. R.||Mr. Michael Jopling and|
|Wilkinson, John||Younger, Hn. George||Mr. Hamish Gray.|
§ Question accordingly negatived.
§ 8.0 p.m.
§ Mr. Brian Walden
I beg to move Amendment No. 10, in page 8, line 8, at end insert:'and a further £100 in excess of the limits so substituted shall be exempt from tax if it is derived from ordinary deposits with the National Savings Bank or ordinary deposits with a trustee savings bank or deposits with a seamen's savings bank'.This is the anti-brainwave amendment. It attempts to compensate the Government for the thought that flashed through the Chancellor's mind when he was in the bath that he should subsidise his competitors. The amendment will encourage people to put money into what the Government wish them to put money into and will help to compensate for the building societies taking money out of what the Government wish them to put money into. The amendment is an attempt to be helpful and to compensate for the damage that the Chancellor has done to his policy by his brainwaves.
I will quote a few figures to show that, in comparison with the War Loan yield of over 10 per cent., we are treating unfairly people who save through the National Savings Bank or the trustee savings banks. On ordinary deposit the yield from the trustee savings banks is 4 per cent., for special investment for a six months' period it is 8 per cent., for a three months' period 7 per cent. and for one month 6 per cent.
In the Post Office the general rate is 4 per cent. and on investment account it is 8 per cent. I take into account the tax-free element of 5.7 per cent. of savings certificates. With SAYE the figure is 7.2 per cent. over the five-year period and 7.6 per cent. with the extra two years.
Those figures demonstrate that we should do more to encourage the ordinary saver, particularly people who are over 65. The amendment is our attempt to do so. It allows £100 in excess which may be put into the kind of savings that the Government wish to encourage. I admit that this is speculative, but I should be interested to hear whether the Government have estimated the additional yield that this would be likely to create.
1412 The amendment also has a social purpose. With a borrowing requirement of such size, we should do everything we can conceivably do to encourage people to provide money for the Government to meet it. Although the Opposition have many reservations about Government policy, and about the borrowing requirement, the country will not be helped if the Government have difficulty in getting the sort of savings that are required.
I am well aware that in recent years National Savings have done extremely well. When we cite things which have done well or badly we tend, perhaps understandably, to refer to the immediate past. That we have done well with savings in recent years does not prove that we could not do much better, and I trust that we shall.
Socially, the amendment would be of assistance to elderly people with small incomes. The further £100 would be discounted from their tax liability. It is also desirable on social grounds in that it does not conflict with the Government's monetary requirements. Were there money enough, there is a great deal that the Government would like to do, but there is always only a certain amount of money that can be spent and the Government have to take account of priorities.
In this way the Treasury would forgo a certain amount of income but the Government would be assisted by getting it back in additional savings. Although it would be a forgoing of income it is one of the more adept ways of doing it, and I recommend the amendment to the Committee.
§ Mr. Nott
Only yesterday I was standing at this Dispatch Box when the Government were being criticised by the right hon. Member for Leeds, East (Mr. Healey) for indulging in the subsidising of their competitors. The Opposition Front Bench speaks with two voices. One day Opposition spokesmen say one thing, and next day they say something different.
The hon. Member for Birmingham, All Saints (Mr. Brian Walden) is suggesting what might broadly be described as an additional help for National Savings. He is right in saying that not all the securities offered by the Department for 1413 National Savings are suitable investments for low-rate taxpayers. A low-rate tax-paper will be advised, for instance, to invest in British Savings Bonds, which will be giving a yield of 8½ per cent. gross, or to put his money in the investment account of the National Savings Bank or trustee savings bank at 8 per cent. rather than to purchase, for instance, National Savings certificates. It is true that gilt-edged stock is yielding 10 per cent. on the stock market, but there is a means whereby the small investor can purchase gilt-edged stock through the Department for National Savings.
These were purely opening comments by the hon. Gentleman and I will refer as briefly as he has to the amendment. It would allow an extra £100 savings bank interest to remain tax-free in the hands of those entitled to age exemption. This would entitle them to receive up to £121 for 1973–74 and up to £140 for 1974–75 of savings bank interest without having to pay any income tax on it.
The proposal must be regarded either as a special extension of the age exemption limit to cover the extra savings bank interest or as an extension of savings bank interest exemption in the case of people who are entitled to age exemption. There are logical grounds for giving special tax relief for elderly people on modest incomes in the way which was debated on the last amendment.
There are also logical reasons for giving people some help to invest in a manner which is particularly helpful to the Government. But there is not much virtue in additional arrangements which would reserve exclusively for elderly people on small incomes a special privilege for investing in a particular way. An unjustifiable consequence of the amendment would be that for 1973-74 an elderly person with an income up to the age exemption limits would get £121 of savings bank interest tax-free while another person, identically placed and perhaps receiving, for instance, interest on War Loan, would still suffer tax on that interest.
This is the kind of discrimination which would result from what the hon. Member for All Saints is proposing. We see logical reasons for encouraging investment in Government securities on the one hand, and we have raised the limits. We also see good reason for raising the 1414 exemption limit for elderly people, as we have done; but to put the two together would result in a considerable number of anomalies which even the hon. Member for All Saints would not wish to see.
§ Mr. Brian Walden
I can see that the Minister is obdurate. I do not think I will be able to persuade him. Therefore, I beg to ask leave to withdraw the amendment.
§ Amendment, by leave, withdrawn.
§ Question proposed, That the clause stand part of the Bill.
§ Mr. William Hamling (Woolwich, West)
I wish to speak in general terms about taxation of pensions and deal with some of the arguments which have been advanced.
It is often claimed in Finance Bills that increased reliefs are concessions, but I am sure that the Government are aware that these increased reliefs to a large extent merely keep pace with the rate of inflation from which the country is at present suffering.
Hon. Members have referred to receiving letters from their constituents. I have received more letters on the question of taxation and pensions than on any other subject. The Chief Secretary knows, through the correspondence I have had with him over the years, about the difficulties which many pensioners meet through getting into arrears on tax. I am sure that hon. Gentlemen on both sides are also aware of this problem.
I particularly have in mind pensioners who are doing a part-time job. In my constituency there are many pensioners who besides getting the State pension also receive a small pension from another source. I have noticed that these people have to pay a marginal rate of tax on their part-time employment. I have in mind particularly pensioners doing part-time jobs. Many pensioners in my constituency have a small pension from the Arsenal—not the football team, but the Royal Arsenal Co-operative Society. Sometimes they get a little pension from the gas board.
One of my constituents wrote to me recently about a small increase in wages which he had received in his part-time 1415 job. The increase had been £1.40 a week, which resulted in a deduction being made from his State pension as well as a deduction for tax. In the end the increase amounted to only 50p per week. The marginal rate of tax in that example is phenomenal. The constituent rightly asks what is the point of working and getting an increase which is subject to this sort of deduction while his household expenses and cost of living continue to increase. In a sense this man is almost worse off than if he gave up the job, because of the deductions.
I am sure many people share my belief that the elderly should be encouraged to continue to work, perhaps in part-time employment, and so retire gradually. Many pensioners are doing jobs in the service industries and performing the work admirably. Others are employed as messengers or are in similar posts. This can help to give them an interest in life. Much more should be done to reduce the amount of tax which is exacted from pensioners by way of either their combined pensions or their pensions plus earnings from part-time work. I would like to see in some future Finance Bill much more generous relief for pensioners.
What is needed is the sort of relief which not only takes account of the increased rate of inflation but recognises the social value of encouraging people to continue working. We have been brought up on the idea that one of the conditions of payment of the State pension is that people should retire. We should get away from that philosophy. One of the things which Sir William Beveridge had in mind in those days was that it would help to relieve the unemployment situation if more elderly people were encouraged to retire earlier. But that is not the position today. I am sure that a great many doctors, social workers and people concerned with the problems of the elderly recognise the virtue of people continuing to work, even though their job on retirement may be a step down from their former job and even though the work may be part-time. I hope that the Minister of State will let us into the Government's thinking on this important topic.
Those of us who are approaching pensionable age—I number myself among 1416 them—do not feel like retiring just because we reach a particular age. Indeed, I hope that the electors of West Woolwich will see to it that I do not retire at the next election. Judging by the force of public opinion at the moment, it looks as though the signs are promising. I do not feel any older than I did 30 years ago, and I do not feel that my vitality has subsided. I am certain that a great many other right hon. and hon. Members in my age group feel exactly the same. This attitude must also be true of a great many other people in society. One of the great tragedies of our society is that we expect people to retire when many of them should not do so.
I should like to turn to the question of the effects of living costs on elderly people. People who retire generally suffer a catastrophic drop in income. I should like to mention some figures contained in a survey published in the Department of Employment Gazette in February this year. Some interesting figures emerge from the retail price indices as they affect pensioner households.
It is significant that the total expenditure in the two-person pensioner households as outlined in that survey was about £14.49 per week. The total expenditure in the general index household, on the other hand, amounted to £33-59 per week—a remarkable disparity. There is a tremendous difference in the incomes which go into pensioner households and those which go into other households, and yet pensioners must pay the same price for commodities as do the rest of us. Their cost of living also has risen. The survey shows that in the pensioner households in respect of all items the average cost of living index in 1972 was 11.4 points higher than it was in 1971. In 1972 in terms of food it was on average 14.4 points higher than it was in 1971.
If we look at the level of personal reliefs and the alterations which have now taken place, we see that the lower level has risen by 10 per cent. and the higher level by 8.5 per cent. The Minister of State in his reply may mention tax thresholds, but they must be considered as pro rata developments in the sense that they barely keep pace with the rate of inflation.
Other significant facts are brought out in the survey. Total expenditure on food in a two-person pensioner household was 1417 33 per cent. of family income, whereas total expenditure on food in the general index household was only 24 per cent. In other words, a far higher proportion of the family income in pensioner households is spent on food. Surely the fact that in the last two years food prices have been rising faster than other prices should be reflected in the reliefs.
There are other significant figures set out in the survey. Out of a total expenditure in the two-person pensioner households the amount spent on fuel, light and ipower was £1.61 per week. In the general index household this expenditure was only £1.98 per week out of a total expenditure of over £33. In other words, again a far more significant proportion of the pensioner's expenditure was dissipated on fuel, light and power.
These are basic things, and we are entitled to ask what is the situation which obtains in this country when so much of a pensioner's family expenditure must be spent on basic necessities of life, such as fuel, light and power and food, and we must ask ourselves what amount is left for other things. On transport and vehicles, according to the survey, general index households spent £4.76 per week and pensioner households only 61p. There is a very wide disparity there. On clothing, pensioner households spent only 64p a week, with general index households spending more than £3 a week. Then come television and radio licences and rentals. The pensioner household spent 34p a week and the general index household 41p. This is relevant to the discussions that we have had on other occasions about television licences and pensioners. For pensioners, television comes in the same category as food or fuel and light. It is one of the necessities of life.
The other remarkable feature is that both types of household spent pretty much the same on furniture. This came as a surprise to me. Apparently pensioners spend almost as much per week on furniture as general index householders. One might have supposed that that was not so, but the figures indicate that it is.
The next item in the survey is hotel and holiday expenses, subscriptions and donations, with general index householders spending £1.29 a week and pen- 1418 sioners 26p a week. That seems to indicate that there are not many pensioners who have holidays—at least, that they can afford—comparable with those which ordinary householders enjoy.
Behind this debate, that is the picture of the living conditions in pensioner households, with so much of their household expenditure being devoted to the necessities of life and with very little left for other expenditures such as theatre and concert going. It seems that pensioners are having to do without many of what might be termed the frills of life.
In terms of the reliefs in our tax system for pensioners, I suggest that we ought to bear in mind some of the general considerations upon which I have dwelt. Certainly we ought to be far more generous than we have been about the general level of taxation on pensions. We would save an awful lot of heartache for our old people if we were.
§ [Mr. IFOR DAVIES in the Chair]
§ 8.30 p.m.
§ Mr. Joseph Hiley (Pudsey)
I agree with the hon. Member for Woolwich, West (Mr. Hamling) that reductions in taxation and increases in pensions have a salutary effect on all those who enjoy the advantages of them.
I noticed that in the course of the debate on the two amendments which we have just dealt with there was considerable emphasis on savings. It is on the savings approach to the problem of relief for persons over the age of 65 that I wish to say a few words.
When the Opposition talk about reductions in taxation, they always refer to them as "handouts" to their fortunate recipients. But rather than talk about handing out money which has already been taken from an individual, I prefer to describe them as "diminishing demands" by the Inland Revenue on that class of person.
A few days ago I re-read the Budget speech of my right hon. Friend the Chancellor of the Exchequer and I noticed that he devoted four columns of it to praising savers. He was right to do so and I agreed with all that he said. I believe, however, that savers, especially those whose incomes are higher than those whom we are now discussing, will ask themselves "What is the Chancellor 1419 doing to compensate us for our efforts to produce for ourselves sufficient funds to avoid making any further demands on the State?" Unfortunately the answer is that, despite all the advantages in Clause 12, nothing has been done in respect of any investment income of people earning more than £2,000. That figure was fixed for surtax purposes more than 50 years ago. Today we still use the same figure by which a surcharge or its equivalent is added to the taxation bill of people in that category. They are only a small body of taxpayers.
I tabled a new clause proposing that the figure should be increased from £2,000 to £3,000. If a relief of that kind were granted it would cost the Exchequer only £5 million a year, but it would do some little justice to those to whom my right hon. Friend has referred, and I suppose that every hon. Member feels that they are the very people who should be encouraged.
The hon. Member for Woolwich, West said that the effects of reductions of any kind are salutary. I believe that there are adverse effects when the individual feels that he is being penalised for the thrift and industry he has displayed during his working life.
§ Mr. George Cunningham
Will the hon Gentleman confirm that he is talking about people with an investment income of £2,000 a year, which means that they must have accumulated assets of about £30,000? If he is dwelling on the fact that the amount of tax relief would be only about £5 million, may I ask him to tell the Committee how many individuals would be sharing the £5 million?
§ Mr. Hiley
I cannot answer that question now. The answer to my question was that it would cost £5 million. We are talking about investment income. I shall never again talk about unearned income, because people who have been able, industrious or hard-working enough to provide that amount of capital have done more for the State than most others. I hope that when the time comes, which will probably be in Committee upstairs, the Minister will look favourably at the proposal that there should be an extension to relieve those in the category I have described.
§ Mr. Charles Loughlin (Gloucestershire, West)
May I ask the hon. Gentleman to clarify a point? I am certainly sympathetic when he talks about people who, by thrift, have managed to make provision for their old age. Will he tell me how it is possible, on the basis of thrift as we know it in the general sense, for someone to make provision of £2,000 a year for his old age?
§ Mr. George Cunningham
I should like to dwell on the point that has just been the subject of an exchange. I doubt whether there are many people, but there must be some, who, by means of thrift rather than of inheritance or gift, accumulate about £30,000.
§ Mr. Cunningham
To get an investment income of £2,000 a year would require accumulated assets of £20,000 to £30,000. To dwell upon an investment income figure of £2,000 a year seems to suggest that we are dealing with people not far above ordinary people. The hon. Member for Pudsey (Mr. Hiley) has been talking about people with assets far higher than those of the vast majority of people in this country.
If the Government have any more tax reliefs to offer I have a suggestion, to which I shall be coming, which I think commands greater priority in the queue than the one mentioned by the hon. Gentleman, although I accept that the surtax level for investment income has remained static for about 56 years in cash terms and, therefore, that the threshold has fallen in real terms.
Clause 12 relates to various ways in which we deal with the tax treatment of elderly people directly by means of the age relief and indirectly by means of the dependent relative allowance. I support any moves to increase tax reliefs offered either directly or indirectly for people over 65 years of age.
I want to draw attention to one way in which the Government are proposing, 1421 quite disgracefully, to make the tax treatment of people over retirement age much worse in future than it has been in the past. I refer to the proposal that those who are forced, by not having an occupational pension scheme, to be in the State reserve pension scheme will be taxed upon that pension after they retire in the way that normal pensions attract tax, but the contributions which they make in order to gain that pension will not attract tax relief.
This matter was the subject of a Government defeat in Committee upstairs. My amendment to correct the Government's proposal in the Social Security Bill was carried by 11 votes to 5. Two Conservative Members were detached from their allegiance to the Government, and I give them praise and credit for their action, because the amendment would not have been carried without Conservative support. Those two hon. Members were prepared to support my amendment, while three Conservatives consciously abstained although they were present. The Minister was left with his entourage of his Whip and his PPS and two other Conservatives.
That is a measure of the strength of the case—this is not my oratory—that it is possible to muster on this matter, and I hope that the Government, in the context of the Finance Bill and of this clause, will say that it is not their intention to undo that decision by the Standing Committee considering the Social Security Bill by dragooning Conservative Members who may not have heard the argument—but they will—into the Lobby to alter the Bill back to its original form.
This is not the time—though it is proper to refer to the matter—to go through the whole argument in detail, but there are one or two points which I should like to make for the benefit of hon. Gentlemen opposite who will, I hope, pay serious attention to this issue when it comes back to the House.
It is estimated by the Government Actuary that 7 million people will contribute to the Government's pension scheme. The surprising fact—it was a surprise to me—is that of those 7 million an estimated 5 million to 6 million will be taxpayers. That is a high proportion of the total. We are therefore talking not about a few who will contribute to 1422 the scheme but about the vast majority, and I am told officially that if tax relief were granted the sum involved would be about £25 million.
The Government's case for their proposition that contributions to the State scheme, unlike those to every other pension scheme in the country, should not attract tax relief consists of three parts, and all three were advanced on Second Reading. The first part is that those who will contribute to the scheme are relatively poor and will, therefore, get the least advantage from tax relief. The answer to that is that according to the Government's own figures 5 million to 6 million of the 7 million people involved pay tax. Without proving it I assert the fact—it can be proved, but I shall not now take the time to do so—that only a tiny number of people pay so little tax that they would not get the full relief if any relief were granted.
The second part of the case—it is upon this that the Government rely principally —is that they have slanted the contribution to the State scheme to make the employer contribute 2½ per cent. of salary and the employee only 1½ per cent., and that by departing from some supposed norm of a 50-50 split they have provided something which takes the place of tax relief.
I was able to show in Committee upstairs—I can show again at any time on the basis of the Government's own figures—that a 5:3 ratio for contributions to pension schemes is normal throughout the private sector, the public sector and both sectors taken together. It is also the ratio that we have adopted for our own pension scheme. When we did that last year, or whenever it was, we said that we need to contribute only three-eighths of the total of the contribution; yet we give ourselves the tax relief. Why, then, if a person is contributing to the State reserve scheme should he not get the tax relief too when he will have to contribute the three-eighths?
The third argument of the Government is that it is administratively easier not to give tax relief, which is undeniable. Administrative ease is not an unworthy rationale in these matters. One must be consistent and say it prevents the giving 1423 of relief either to all contributors for pension purposes or to none. One cannot say that, because people are contributing to this scheme, administrative ease means we cannot give them their tax relief whereas if they are contributing to any other scheme, perhaps even on more favourable ratios than those I have mentioned, they still receive tax relief.
In 1965 when the Labour Government, in my view ill-advisedly, abolished the tax relief on the basic pension scheme, there was a quid pro quo. An increase in the personal allowance was given to taxpayers. Nevertheless, even with that quid pro quo, the Conservative Party opposed that change. It did not say merely that it did not like it, but it advanced the most carefully thought-out reasons of principle why it was bad. This was done not only from the back benches. The Front Bench spokesman on finance for the Conservative Party, the right hon. Member for Finchley (Mrs. Thatcher), said at that time that what was being done was totally contrary and—I take her word for it—went back to Pitt in 1799. She then said that the Labour Government, if they did this, which they did,will be reversing a principle which has stood the test of time since 1799. When Income Tax was first introduced, in that year, Pitt himself emphasised the principle that where benefits were taxable, contributions should be deductible".I find it hard to see Pitt using those exact words, but that is what the right hon. Lady said he said.
Referring to the Chancellor of the Exchequer, the right hon. Lady concluded:what I believe he is doing is paving the way to disallow private pension contributions for relief … the next stage is to disallow contributions for life assurance or occupational pension schemes ".—[OFFICIAL REPORT, 20th May 1965; Vol. 712, c. 1747–50.]It has been the boast of the Conservative Government that their new State reserve scheme is an occupational scheme like all the others. It is to be funded, it is to be free of Government control, it is to be a money purchase scheme just like the others except that its management will be in the hands of a publicly appointed board. If it is like any occupational pension scheme in other respects it must be like it in this respect too.
1424 I suggest to the Government that it will be dishonourable, apart from unfair, if the Conservative Party goes back upon the principles it enunciated in 1965, which at that time were right. They did not bear exactly on the change the Labour Government were making because of the quid pro quo I mentioned, but the principles were surely right.
I do not believe the Front Bench can get away with dragooning a sufficient number of Conservative Members into the Lobby on this matter if they know the case, so they must hope that hon. Members will read their papers instead of listening to the case. That is the only way in which they can get it through.
But I give the Government the promise that if they get through here they will have the same struggle in the House of Lords, because I will work up the Lords and the Government will not get it through quietly: they will have opprobrium. There is no doubt that the Lords can be worked up. This is very much a House of Lords point. They will not stand for the Government doing something as dishonourable and unfair as this even though the Commons may put up with it.
§ Mr. Cunningham
I shall work out precisely how one does that before the time comes.
It would be very unfair to distinguish in the way the Government propose. It would be a contravention of the stated principles of the Conservative Party. The effect of this is not small. Anyone who contributes to a normal scheme and gets tax relief would pay, say, £1.50 into the scheme and his employer might pay £2.50. Thus, £4 would go into the scheme for his benefit. Because of tax relief, it would cost the contributor only £l.05p. It will cost a contributor to the State reserve scheme £1.50, with no tax relief; thus, for every pound a man pays in he gets 30 per cent. less in benefit in the fund.
This is a situation which Conservative Members will not stand if they understand the case. I hope that Treasury Ministers can say now—I do not mean when the Social Security Bill comes back 1425 on Report—that they will accept the resounding defeat inflicted on them in the Standing Committee, with the assistance of the hon. Members for Kensington, South (Sir B. Rhys Williams) and Billeri-cay (Mr. McCrindle), with three of their colleagues abstaining, and will treat contributors to the State reserve scheme on the same basis as we treat contributors to every other pension scheme.
§ Mr. Nott
Although I may be unpopular with my hon. Friends to say this, I hope that the hon. Member for Woolwich, West (Mr. Hamling) does not retire. At any rate, I hope he does not retire voluntarily. He is a most valuable member of the Committee on these occasions. We should all be sorry to see him go.
Our income tax system is based on the principle that tax is chargeable on income from all sources, so that people with the same total income and similar family commitments pay the same amount of tax. In this way the burden of taxation is spread as fairly as possible over the community by relating each individual's tax liability to the amount of total income and to his personal or family circumstances.
Despite this, we have recognised the special position of the elderly. As I pointed out on the previous two amendments, the recognition which we give to the special position of the elderly is such that an elderly single person enjoys an advantage in the tax allowance of £105 over the single person's allowance and an advantage of £225 over the normal married couple's allowance. So we have recognised the special position of the elderly by setting the age exemption levels a certain margin above those of the personal allowances.
In certain circumstances the marginal rate can be high. The hon. Gentleman mentioned one or two examples. There might be the operation of the earnings rule. This is primarily a point for the Department of Health and Social Security. Nevertheless I take the hon. Gentleman's point. There can be cases where the pensioner comes out of marginal relief for age exemption and, in just a small band, the tax on the margin can be at a hight rate. This is a point that we understand and accept, but, as the hon. Gentleman knows, this 1426 problem of a high rate of marginal taxation occurs in many circumstances.
One of the features that we have discussed in our Green Paper on the tax credit scheme, for instance, is the way in which such a scheme would help to reduce the marginal rate in certain circumstances. We have mainly been discussing the case of low income families when dealing with the reduction of the marginal rate under tax credits, but I do not dispute that the marginal rate can be high in certain conditions.
The pensioner, the elderly person, can have considerable income above the State pension before he comes into the tax net. I quoted the figures in the debate on an earlier amendment. A single person over 65 in 1973–74 can have an extra income of £322 a year, roughly £6 a week, above his State pension before he is liable for tax. A married couple can have an additional income above the State pensions of £391 before they start paying tax.
So it is not the case that additional earnings immediately above the level of the State pension bring a person into the tax bracket—the threshold is higher than that—but nevertheless I accept the points that the hon. Gentleman made. There is a high marginal rate at certain points of income and in certain circumstances.
§ Mr. Hamling
Does the Minister also accept that many pensioners regard this as the greatest imposition they have to face?
§ Mr. Nott
I think it is true to say that the community generally regards taxation as something of an imposition. I started by saying that the general principle of our tax system, whether the nation likes it or not, is that people are liable to tax on their income from all sources. This applies to pensioners as much as to other people. I do not deny that taxation is not the most popular of impositions, but we all have to make our contribution to it.
The hon. Member said that he did not want to discuss tax thresholds for the elderly, but I repeat that for a single person the tax threshold has been raised from £913 to £13.46 a week over the last three Budgets. This amounts to an increase of 20 per cent. in real terms.
§ Mr. Hamling
But this applies to taxpayers as a whole. I said that all the amendment would do was to take account 1427 of existing inflation. It would not give greater reliefs.
§ Mr. Nott
I am sorry, but that is not right. The 20 per cent. that I talked about is an increase in real terms. The increase in money terms is considerably greater than that. I repeat the point I made on an earlier amendment that in real terms, over the period we have been in office, the pension has increased by almost twice as much as the increase in prices. Over three years, in money terms, the pension has been increased by 55 per cent. but, as I said, in real terms that is an increase almost twice as great as the increase in prices.
My hon. Friend the Member for—
§ Dr. John Gilbert (Dudley)
I have been listening carefully to the Minister. Will he make it clear that he is talking about the relativities between the level of pensions and the average level of prices and is not referring to the level of prices which would enter into most pensioners' budgets, which would be a very difficult thing indeed?
§ 9.0 p.m.
§ Mr. Nott
The hon. Gentleman mentions colour television sets, but perhaps he will remember that the Labour Government twice raised the high levels of purchase tax. Therefore, when his Government were in office the tax on television sets was twice raised. As the hon. Gentleman mentions television sets, let me say that with the introduction of VAT the amount of tax on a television set has come down.
§ Dr. Gilbert
The hon. Gentleman is making my point for me. The Government are bringing down the price of colour television sets, Mars bars, Coca Cola, potato crisps, Kit Kat and liquorice all-sorts as their contribution to an attack on the cost of living of the ordinary pensioner. To talk about average prices is irrelevant. The hon. Gentleman should talk about the ratio between pension increases and the price of food. That would be more to the point.
§ Mr. Nott
He could not have heard his hon. Friend the Member for Woolwich, West who pointed out that television sets are a particularly important item in the expenditure of pensioners. It is too absurd for me to answer his hon. Friend and say that the tax has come down on an item of expenditure which his hon. Friend said was important for pensioners and then for the hon. Gentleman to complain about it.
§ Mr. Nott
I come now to the point raised by my hon. Friend the Member for Pudsey (Mr. Hiley). I appreciate that this is a matter of great concern to my hon Friend, who raised it last year. The additional cost of raising the figure from £2,000 to £3,000 for those over the age of 65 would be more or less as my hon. Friend stated.
We have said that all investment income up to £2,000 will be treated as earned income in the future. I think that the reason why his elderly constituents are not aware of this fact is that it comes into effect only in the current tax year. This makes a very considerable difference to the amount of tax paid by those to whom my hon. Friend referred—the elderly person who has worked all his life, who has been thrifty and deserves to live in reasonable comfort for the final years of his life. Taking investment income of £1,300 a year from his lifetime savings, in 1971–72 his income tax and surtax, if any, would have been £325. In the current year, 1973–74, it will be £157. His effective rate of tax will be about half what it was in 1971–72. This will be of very great benefit to large numbers of elderly people living on a lifetime's savings. It is no use the hon. Member for Islington, South-West (Mr. George Cunningham) commenting adversely. These are people who have saved throughout their lives. I see no reason why they should be taxed at an especially high rate and more than anyone else because they have been thrifty. The hon. Member for Gloucestershire, West (Mr. Loughlin) said that he was in favour of this concession. I am glad to know this.
§ Mr. Loughlin
If the Minister is telling me that someone, whether over or under 65, has an investment income of £1,500 as a result of thrift, will he tell me how much capital must have been accumulated to produce that income?
§ Mr. Nott
The hon. Member has taken up a great deal of time and I now come to his remarks. He spoke at length about the Social Security Bill. We are here debating a fairly narrow clause in the Finance Bill concerning the raising of age exemption and dependent relative relief. I would be wholly out of order if I discussed events which happened in Committee on the Social Security Bill.
I do not want the hon. Member to leave the Committee believing that we have not taken the point he was making. We have. Although relief is given on employees' contributions to approved occupational schemes, there is no injustice in not having it on reserve scheme contributions because the employees' share of the contribution has been kept down to take account of this. Under our proposals an employee will pay 1½ per cent, of his reckonable earnings compared with the employer's 2½ per cent., and in the result the employee who is liable to tax will pay about the same as his net contribution would have been had he enjoyed tax relief on an equally divided contribution of 2 per cent.
§ Mr. Nott
I cannot give way to the hon. Gentleman at this point because he is pursuing a matter which arose on the Social Security Bill which is not in any way connected with the clause we are discussing. I understand that he was a member of the Committee on the Social Security Bill and he will have plenty of opportunities to debate the matter when that Bill comes back to the House.
Every time I refer to the hon. Member for Woolwich, West he leaves the Chamber. I was about to say that of course we realise that a great deal of the basic income of pensioners is spent upon necessities. That is why we took great care in the revision of the indirect taxation system to protect low-income groups, particularly pensioners. The zero-rating of food has been extended in the Budget this year. Fuel, fares and transport are all zero-rated. This will ensure that the changeover has not been regressive.
In conclusion I should like to say to the hon. Member for Woolwich, West, who has once again left the Chamber, that we are conscious of the special needs of the elderly and we understand the pattern of their expenditure. My right hon. Friend the Secretary of State for Social Services keeps their problems and their needs continually under review. I believe that since we took office we have done a great deal to improve the position of pensioners, and the Committee no doubt recognises that fact. If it does not, it should.
§ Mr. Brian Walden
It seems that I cannot leave the Minister of State alone for 15 minutes. When I left the Chamber for refreshment everything was nice and pleasant. I came back to hear a terrible and rancorous argument. The reason is that the Minister of State—the Financial Secretary took the same attitude last night—has been more pernickety than the Chair. I suggest to Treasury Ministers, that, if the Chair allows a certain discussion to continue and does not rule that it is out of order, it is their responsibility to answer that discussion until such time as the Chair indicates that it is not too happy and that things are getting out of order.
I wish that the Government Front Bench would stop doing the Chair's job. 1431 The Minister of State, if the remarks of my hon. Friend the Member for Islington, South-West (Mr. George Cunningham) were in order, should have the courtesy to reply.
§ Mr. Walden
The Minister did not. He said that the remarks were much more pertinent to the Social Security Bill. That may be so, but it is not for him to make that judgment. My hon. Friend's remarks were not ruled to be out of order, and we will not continue to put up with the Government Front Bench doing the Chair's job. It was said yesterday, and the pretext has been used today, that were the matter in order they would like to tell us much. We would like them to tell us much and to wait until they are ruled out of order.
§ Mr. George Cunningham
I have no wish to incur the Committee's displeasure by taking this matter too far. I am appreciative of the understanding that has been shown to me so far.
I gladly give the Government credit for introducing a system by which investment income is taxed at the same rate as income. That is a long overdue change for which the Government deserve credit. However, there is a legitimate argument about the amount of income which should be freed from a surcharge. To say that income derived from an investment of about £25,000—of course, the amount of the investment depends on the interest rate—should be free from a surcharge is giving benefit much further up the scale than is justified.
The Minister sought to justify the denial of tax relief to the State reserve pension scheme. The argument which he used was used in Committee, and utterly demolished, to the satisfaction of five Government hon. Members. It has been said that more is taken from the employer than the employee. More than what? Very few pension schemes take the same amount from the employer as from the employee.
The Government Actuary's report on Government pension schemes says that employees in contributory schemes contribute 33 per cent. to 35 per cent. of the total contribution. In the reserve scheme employees will contribute 37½ 1432 per cent. In other words, they will contribute more than the norm. Hon. Members make a three-eighths' contribution to their pension scheme. That figure was arrived at—hon. Members might like to look at the Boyle Report—because it was in line with outside practice. We give ourselves the tax relief. If we do that for ourselves, and if we give tax relief to all the other schemes which contribute three-eighths or less, we cannot deny tax relief to the reserve scheme contributors. I could go into lots of figures but I am sure that I should incur the Committee's displeasure if I did so.
In Committee the Government's argument was not acceptable to two Conservative hon. Members who voted for my amendment. Three other Conservative hon. Members abstained. If the facts are known there will be even more support, I believe, from Government hon. Members than from my hon. Friends for the proposition that I am putting forward.
§ Question put and agreed to.
§ Clause 12 ordered to stand part of the Bill.