§ 3.50 p.m.
§ Mr. John Cope () Gloucestershire, South
I beg to move Amendment No. 35, in page 8, line 29, leave out '£865' and insert' £943'.
§ The Chairman
I think it would be convenient to discuss at the same time Amendment No. 36, in page 8, line 32, leave out '£625' and insert '£724'.
§ Mr. Cope
In accordance with the new rules of the House, I should start by declaring my interest. I pay income tax and I claim the married allowance which is the subject of Amendment No. 35. (AN HON. MEMBER: "And children's allowance? "]. I have claimed it in the past and I hope to claim it again in the future. However, I have no interest in Amendment No. 35, which relates to single allowances.
Clause 11 alters the personal reliefs granted to taxpayers. I recognise that the Chancellor's purpose is to increase the personal allowances and thus help all taxpayers above the minimum limits. That 1231 is something, I suppose, for which we should be grateful, but I maintain that the Chancellor should be more grateful because the allowances would have been much higher if they had taken account of inflation.
One disadvantage of the amendment is that it covers only one inflation-related point. We have had debates, and no doubt will have others, about inflation and taxation. But another disadvantage is that my proposal of £943 for married people is an awkward sum to calculate. The Chief Secretary and I share the profession of accountant and realise the difficulties involved in awkward calculations for our profession and for those of its clients who may be less nimble at mental arithmetic. But the Chancellor's proposal of £865 is also inconvenient. It has no noughts and is not readily divisible by other figures.
I should be interested to know how that figure was arrived at. I arrived at mine by asking the Library by how much these allowances should be increased to keep pace with inflation since they were first introduced. There is a slight complication because of the changeover to the unified tax system, but the present married allowance of £775 and the single allowance of £595 were introduced upon that changeover in 1973. They were then equivalent to the old allowances of £600 and £460 which had been introduced in 1972.
I therefore thought it right to apply inflation from 1972 to date, rather than from last year when these precise figures were introduced. The resultant figures of the size of personal allowances required in March 1974 to preserve their value in April 1972 are the figures in the amendments. No doubt many hon. Members will be surprised at the size of these figures. That reflects the amount of inflation since 1972. I am not making a party point, particularly as the figures that I have taken are those up to or just before Budget Day.
My proposal of an increase of £168 in the married man's allowance is nearly double the Chancellor's proposal of £90. My proposed increase in the single allowance is £129, more than four times what the Chancellor proposes. That shows how his increases favour the married man 1232 against the single person. We shall be returning to this point later, no doubt, particularly with regard to single parent families, who are in a difficult position these days. I am not sure whether it is right to attack them by comparison with married people, but we can return to this matter.
The main disadvantage that the Chief Secretary will see in the amendments is their expense. I hope he will be able to give us a precise figure. I have not tried to cost the amendments myself, but the figure must run to thousands of millions of pounds. This may make the amendment unacceptable, particularly to those who believe that reliefs and the increase of reliefs are a means of giving money away. However, the red book which fills in the details of the Budget proposals shows that without the changes in income tax proposed in the Budget there would have been an increase of £2,400 million in the amount of income tax collected. That reflects almost entirely the effect of inflation and much of it is exactly the same money as is dealt with in the amendment.
So the onus is on the Treasury to explain why it wants to collect so much more as a result of inflation and not just to say, as the Chancellor did, "Are we not kind? We are giving you some of that £2,400 million back."
I hope the Chief Secretary will say how many people would be taken out of the tax net altogether if these amendments were accepted. I have no doubt that a large number of people would escape tax altogether or move into a much lower tax bracket. We should be told how many people the Chancellor of the Exchequer proposes to bring into the tax net—in other words, by allowing the inflationary situation to bring them in. I have made the point in earlier debates that the Chancellor had not been as honest as he might have been in some respects in the way in which he has used inflation to gather more tax. I do not entirely exonerate Conservative Chancellors from this charge, but it seems to me that in a way inflation makes liars or dishonest men of us all since we tend to believe that a pound this year is the same as a pound was last year. This is no 1233 longer the case. Until the Chancellor and indeed all of us—recognises that a pound is no longer worth what it was last year, and until we begin to allow for this factor and appreciate the full extent to which inflation and rising prices attack the basis on which we found our financial decisions, we shall find it much more difficult to gather public support for the difficult decisions which will be required if we are to beat rising prices.
I tabled this amendment not so much to deal with the precise amounts involved but to air the matters which I have attempted to put forward. I hope that the Chief Secretary will be able to say how much money the Government will take additionally if they refuse to increase allowances in line with inflation.
§ Mr. Terence Higgins () Worthing
It has long been a principle of Conservative Oppositions—certainly one which we enunciated between 1964 and 1970—that one does not shoot Santa Claus. This is our feeling about Clause 11. We shall not vote against the clause as such since it increases certain tax allowances. None the less, it has also been a principle of our opposition that we have thought it right to table certain amendments which will enable us to isolate particular issues so that they can be debated in an orderly and proper manner.
I am sure that the Committee is most grateful to my hon. Friend the Member for Gloucestershire, South (Mr. Cope) for tabling these amendments and for speaking to them so eloquently. The main point advanced by my hon. Friend is becoming increasingly important, and indeed is central to a great deal of our economic management. It relates to the extent to which fiscal drag, if I may use that inelegant phrase, should be offset by an increase in various tax allowances. The clause raises only some allowances, and amendment No. 35 is related to two of them. I refer to allowances for married couples and single persons, rather than to the specific allowances to which we shall return on subsequent amendments.
In an inflationary situation when Government Ministers from the Chancellor of the Exchequer downwards are saying that they expect inflation to continue at a very high rate, the attitude taken by the Government to these allowances is 1234 extremely important. I hope that the Chief Secretary will clarify the precise position on these allowances because it may be that the value of the provision in the Bill on this occasion is not as great in real terms as at first sight may appear. Since my right hon. Friend the Member for Altrincham and Sale (Mr. Barber) took action on this matter, inflation, alas, has proceeded and is likely to continue to be with us. The first question we must ask is whether or not the increase in allowances put forward in Clause 11 as it stands is sufficient to compensate for the effect of inflation. My hon. Friend mentioned the research he had undertaken in the Library, but since then there have been increases in the cost of living, part of which reflects the Chancellor's Budget measures. This may also be a relevant matter in this context.
A further question which we must put to the Chief Secretary is: "What increase in the allowances would be necessary to restore the real position since the date of last uprating?" I hope that we shall have clear and unequivocal answers from the Chief Secretary on these points. They are related to the much wider question of indexation, and I have in mind the interesting and in some ways unprecedented remarks made on this topic by the right hon. Gentleman the Chancellor of the Duchy of Lancaster. I hope that the Chief Secretary will give us a clear view on the matter.
I come to a further important point which is reflected in an article which appeared in The Economist on 27th April. It concerns the relationship between various personal allowances for married couples and single people and the question of family incomes supplement. We heard a great deal from the Labour Party in opposition about the various effects of FIS, but we now find a situation in which the tax allowances have been increased by a certain amount and FIS by nearly £2 a week. The article in The Economist brings out a series of arguments on the poverty trap, arguments with which the Committee will be familiar. I was astonished to discover at an earlier stage of the Committee's proceedings that the Chancellor of the Exchequer apparently was unfamiliar with the arguments on the poverty trap. He seemed unaware of the high rates of 1235 marginal tax and the tax paid by people on low incomes, and even those around or below the tax threshold. I think that is quite true, even though the hon. Gentleman the Minister of State, Civil Service Department, appears to find it amusing.
The point which The Economist makes is:The combination of Mr. Healey's budget and Mrs. Castle's generous increases in family income supplement will have one quite disastrous result, when the FIS increases come into effect in July. By raising the FIS eligibility limits (so that the average family on FIS will get nearly £2 more a week) very much more than the personal tax allowances—"the matter which we are now discussing—and at the same time increasing the basic rate, the Government has created a marginal tax rate for the extra £1 earned by a broad band of poor families which is a good deal higher than the 83 per cent. rate it has introduced on the extra £1 earned over £20,000 a year.The crucial point here is the relationship between the family income supplement and the tax changes which the present Government are introducing, with regard to both these matters which we are now debating on the amendment and the related question of the increase in the standard rate of income tax. The net effect of having this kind of overlap is apparently to make this situation worse. We should have a clear statement from the Chief Secretary.
The Chancellor of the Exchequer earlier apparently stated that he was unaware of the point whether it is or is not the case that the poverty trap, or the poverty surtax as we may call it, is made worse than it was by the proposals which the Government have introduced. I should like a clear statement by the Chief Secretary whether this is the case. The amendment which my hon. Friend the Member for Gloucestershire, South has put forward would do something to ameliorate this situation albeit at, no doubt, significant cost, for the reasons he has set out. To be more specific, it appears that there are a large group of people eligible for family income supplement who are also above the tax threshold. The FIS figures for those with one, two and three children under 11 years are £25, £28 and £31, whereas the corresponding tax threshold figures are £21.25, £25.85 and £30.48. 1236 There is a considerable overlap which means, in effect, that those who are needy enough to attract income support from family income supplement are on the other hand apparently regarded as sufficiently affluent to pay tax. This is an important point and I hope that the Chief Secretary can confirm whether I have understood the position correctly and whether with this poverty surtax the Government have made matters worse.
The reality of the situation is that for a considerable range of people there is little gain in net income for a significant increase in net earnings. People will get very little extra net income for a considerable increase in earnings at this crucial level where they are beginning to approach, or may have passed, the tax threshold. If that is so, there must be considerable disincentive for people in this group to earn more. This is a matter of great importance. The Opposition have always believed that the tax system should be a system of giving incentives for people to work harder rather than one of causing them to feel that if they work harder they will not be any better off. The matter should be clarified. We want to know whether the Government's measures, taken as a whole, make the situation worse by reducing incentives. I hope that we shall have a clear statement on this from the Chief Secretary.
I turn to Amendment No. 36 and the question of the single person allowance. Here the same arguments about the effect of inflation apply. The Government have raised the threshold for this group of people but apparently the rise is nowhere near enough to compensate for inflation. I hope the Chief Secretary will say whether this is the case and whether this amendment will offset the situation so that inflation is taken account of so far as the limit is concerned. I have already suggested that it does not perhaps go sufficiently far to have that effect. I hope that we shall be given the figures on the cost involved.
We should also take issue with the Government on the statement made by the Chancellor of the Exchequer in his Budget speech. He devoted a comparatively small part of his Budget speech to this matter, which he announced as good news. I think I am right in recalling that he said that he was giving the good 1237 news first and would then turn to other matters less palatable to the House. Anyhow, as my hon. Friend has suggested, the good news did not seem to be as good as it appeared to be on the face of it. The Chancellor of the Exchequer qualified the position by saying that perhaps a single person had done rather well under the changes made by my right hon. Friend the Member for Altrincham and Sale and that, therefore, he would give a substantial increase to married couples but significantly less, proportionately, to single people. I think I am right in saying that the Government have increased the allowance to single people by merely £30, which, allowing for fiscal drag, is very small. Is it the case that my right hon. Friend the Member for Altrincham and Sale had got the balance wrong between married couples and single people? I would not take that view.
We understand the great importance rightly attached to married couples and, in particular, we understand the problems of family poverty for married couples with a large number of children. Nevertheless, a great many single people feel that they are to a considerable extent subsidising those who are married or those with large numbers of children, and, that being so, it is right that we should raise the question of whether the single person allowance has been increased by a reasonable level by the Chancellor in his present proposals. We know that it is not sufficient to offset for inflation, but, leaving that on one side, is it right even in relation to the increase made in the married couple's allowance? Again I hope that we shall have an explanation from the Chief Secretary.
The threshold has been raised. While successive Governments raised the thresholds and took a number of people out of taxation altogether, it has been found that, with inflation, these people have reappeared among the legion of taxpayers. This is perhaps something which in present circumstances we have come to recognise as a fairly typical phenomenon, but while we were in office We reduced the standard rate of tax, whereas it was almost the first action of the present Government to increase the standard rate of tax. Therefore, for those people still within the tax paying 1238 group, or, those taken out only to reappear among the legion of taxpayers, the step is that much more acute, and to that extent a higher rate of tax is paid. It is important, therefore, that we should get the threshold right, as well as ensuring that the step is as small as it can reasonably be made.
We must look also at the effect of the threshold on different groups. In his Budget speech the Chancellor of the Exchequer said that a married man with two children would have some benefit from the Government's proposals up to the level of £54 a week. I am far from clear whether that statement comprehended all the changes announced or foreshadowed in the Budget speech, which covered a great many items some of which were implemented by order and some of which were implemented by increases in nationalised industry crises —I mean "nationalised industry prices"; a good Freudian slip, perhaps —or whether it contemplated only the narrow range of items embodied in the Finance Bill. However, be that as it may, it was asserted that the married man with two children would be better off up to £54 a week. I have some doubts about that.
For other categories, for just the married couple, for example, the figure was a great deal lower, and the single person taxpayer—this is the crux of the matter—begins to be worse off on an income of only £18 a week. This being so, there is obviously a considerable bias in the measures as a whole in favour of the married couple compared with the single person. Therefore, the question again arises whether it is right that the balance between the two allowances should be of the kind which the Chancellor has proposed in the Bill, or whether a more sensible balance should be struck.
The reality of the matter—I shall return to this on later amendments, and I hope to say a word about it in the debate on the clause—is that all these allowances could be better dealt with within the framework of the tax credit scheme which we in the Conservative Party put forward, which has been much debated both on the Floor of the House and in Select Committee, rather than piecemeal as the Government have sought to do, or, in the case of certain 1239 of the allowances, not at all. I hope to return to that matter later.
For the moment, my hon. Friend the Member for Gloucestershire, South has rightly isolated some of the arguments which call for a clear statement of policy from the Government, and we hope to elicit that clear statement during this debate.
§ Mr. A. J. Beith (Berwick-upon-Tweed) Being surrounded by accountants, I feel at some disadvantage in not being able to declare that interest and having to speak very much as a layman.
§ I support these two amendments, and I endorse what has been said by both the hon. Member for Gloucestershire, South (Mr. Cope) and his hon. Friend the Member for Worthing (Mr. Higgins) about the desirability of gearing our tax system to cope with inflation. However, as a good deal has been said about that by my hon. Friend the Member for Cornwall, North (Mr. Pardoe), I shall say no more about it on this occasion.
§ For some time I have been much concerned—if I had not been, my constituents would have made me so—about the effect of low tax thresholds on the incentive and encouragement to work among those who have either small superannuation pensions or small widow's pensions. I have in mind here those who are particularly affected by the proposed married and single person allowances, and I direct special attention to Amendment No. 36, which deals with the single person's allowance.
§ Since I became a Member of Parliament, no item has added so much to my postbag as has the position of the working widow who is hit by the relatively low single person's allowance and who will not, in my view, have her position sufficiently eased by the present proposed increase. For that reason, I strongly support Amendment No. 36. Widows with a small pension and earning by their endeavours small sums of, perhaps, £10 or £20 a week in relatively low paid jobs, such as in catering, frequently write to me to say that they find it difficult to understand why they should be allowed so poor a rate of earnings before they are taxed, and they make comparisons between their position and that of married women. They find their position 1240 difficult to understand partly because of the effect of their pension in relation to taxation, and I think that tax officers might well do more to explain this aspect of the matter. However, the fact remains that the single person who is a widow finds herself particularly disadvantaged if, for example, she has a house which was chosen and bought at a time when the family was together and her husband's earnings were coming in. She has the same level of household expenses as does the married woman alongside whom she works, and she finds that the burden of tax on her small income bears very heavily.
§ The Chief Secretary ought not to underestimate the resentment which this causes, or the feeling among many widows that it is just not worth their working. Without doubt, many widows are doing extremely valuable work, work without which some of our public services would find it hard to continue.
§ This problem could be dealt with in a number of ways, but it seems to me that the easiest and most immediate opportunity is to ease the single person's allowance. It could be argued that this method of dealing with the problem would bring within its scope not just widows but single persons living at home who did not have the same level of household expenditure. One of my constituents suggested in this connection that a householder's allowance might be a way forward, and I hope that the Treasury will consider that in due course. For the moment, however, some immediate relief should be given to the single person bearing heavy household expenditure, the sort of person who is seriously discouraged from working by the present tax thresholds and who will not be greatly helped by the proposed increase in the personal allowance, and I press the hon. Gentleman to provide for a higher level of single person's allowance.
§ Mr. David Price () Eastleigh
It seems to me that these two amendments to Clause 11, bringing together the question of these personal allowances, raises the whole subject of the effect of inflation on the taxpayer and, hence, on the standard of living of our people. Indeed, the amendments represent the linchpin of the matter before us under Clause 11. The Committee will recognise that the two amendments are designed to raise 1241 both the married person's allowance and the single person's allowance and, hence, the starting point of income tax. In my view, it is this aspect of the matter rather than the sheer social justice of it which at this point in our affairs is the important question to be considered by the Committee.
In this year we face problems of inflation of a different order from those which the country has faced certainly in the lifetime of all of us present in the Chamber, including yourself, Mr. Thomas. On whichever side we happened to be, we have in the past many times discussed the problem of inflation and fiscal drag and the need to keep allowances up in an endeavour to avoid the taxpayer being punished by having to pay in real terms more taxation than he would have paid had it not been for inflation. Now, however, we face inflation which mounts month by month. We hope that it will settle and that the rate will come down but the trend certainly continues upwards at the moment. Today we have had the review by the National Institute of Economic and Social Research, which, I am sure, all hon. Members will at least have looked at. Its prognostications certainly appear to be the same as those to which I have inescapably been driven. We have not yet reached the peak. Even if the present Government are completely successful, which I doubt, in their counter-inflation policy, the peak of the curve has by no means yet been reached.
In wage and salary terms, as the Committee knows, many people benefit from what are called threshold agreements, as do many others who are not themselves subject to threshold agreements but who work in the same organisation as people with threshold agreements. Obviously, if a number of the workers in a company or organisation have threshold agreements and this month will receive their £1.20 a week increase, many others whose unions may not have negotiated such agreements will find that their employers, public or private, necessarily extend a similar threshold increase to them on cost of living grounds.
However, there can be points in the income curve where one hits the starting point of income tax or where one hits the mounting point in the curve, and unless the allowances are adjusted in parallel with the cost of living so that the tax 1242 starting point is raised, even where gross income is increased under a threshold agreement the taxpayer will be worse off. I shall not detain the Committee by developing that further, since to do so would call for a lot of statistics, and even blackboard and chalk would be of assistance. Those familiar with these concepts will understand that if gross incomes increase under threshold agreements and if the starting point of income tax is not raised the point comes at which the individual taxpayer begins to be squeezed. Of the amendments put down for Clause 11 this group is the most critical. As my hon. Friend the Member for Worthing (Mr. Higgins) pointed out, we do not necessarily expect the Government to accept the amendment as it stands but we should be grateful for their views on it because it deals with a continuing problem. Even the National Institute in its optimism did not think that we could get to less than 5 per cent. inflation in under two years. When I first came to this House 5 per cent. a year inflation was regarded as extravagant, and when you first came, Mr. Thomas, the figure was a good deal lower than that.
So, even if the Government were to be as successful as the National Institute hopes they can be—and that will need many policy changes—for the next two or three years we shall be faced with this problem in quite an extravagant form. We cannot talk in a different context about social justice, about social contracts, about equality, and about broad shoulders and narrow shoulders unless we deal with this problem of the starting point of income tax, because the shape of the curve follows from it.
The Chief Secretary and I spent nearly a year discussing this matter in the Select Committee on Tax Credits, and I think that the brilliant gentlemen of the Inland Revenue, with all their curves, persuaded the Chief Secretary that it is possible to have a basic rate of income tax and still have a progressive curve of income tax. That being so, the amendment not only affects the starting point of income tax; it affects the subsequent tax curve which, therefore, affects real rate of income tax for all taxpayers. I believe that this group of amendments is far more important than the numbers of hon. Members present would seem to suggest.
§ Mr. Julian Ridsdale () Harwich
1 intend to make only a short intervention following up what was said by the hon. Member for Berwick-upon-Tweed (Mr. Beith). I am concerned to get more people like widows who are able to work doing a job in industry. If the Chief Secretary were to accept the amendment or if he were able to make a sympathetic gesture towards this group of people he would be helping both the widows and industry.
In my constituency there is a grave shortage of labour, and the only potential source is the large number of widows who could earn the money but have been given no incentive. Perhaps the best way to deal with this matter is to abolish the earnings rule. I was dealing yesterday with the case of a clothing factory which wants 50 workers. If it could get them it could increase its production by 100 per cent. The incentive just is not there. Perhaps the earnings rule could be abolished in selected areas. At one time there were 5,000 widows in my constituency who wanted to work but did not have the incentive, and I therefore ask the Chief Secretary to examine the problem.
§ Mr. Tony Newton () Braintree
I rise to support my hon. Friend the Member for Harwich (Mr. Ridsdale) and the hon. Member for Berwick-upon-Tweed (Mr. Beith) in what they said about widows and others concerned with the incentive effects and relatively low levels—certainly inadequate levels—of personal tax allowances in view of the rate of inflation. I, too, know of many cases where people are desperately needed—for example, the hospital services and other parts of our social services—but those people are more or less consciously deciding not to work because the return is not worth while. That cannot make sense to anyone. Although the amendment would not solve the problem, at least in the short term it would ease it and enable us to consider how it might better be tackled in the longer term. I therefore support very much what has been said on the point.
I wish to press the Chief Secretary very hard on the underlying point which is highlighted by the amendment. I missed the first few minutes of the speech by my hon. Friend the Member for Gloucestershire, South (Mr. Cope), but I 1244 have no doubt that he said that to some extent this amendment was similar to others we have discussed in Committee on the Bill. There has been one significant development since our previous debates which is that we have now heard from the Chancellor of the Duchy of Lancaster—who has not been here in Committee and who, according to Press reports, has gone a great deal further outside the House than Ministers have at the Dispatch Box on the question of increasing allowances and the effect of inflation on the tax system.
As a new and ordinary hon. Member I should like to hear from the Chief Secretary precisely what we should read into the right hon. Gentleman's remarks about the Government's thinking on these matters. It may be that the Chief Secretary is not privy to the thoughts of the Chancellor of the Duchy. If not, that is another matter we should raise. If he is, we should like to hear from the Chief Secretary a fuller explanation of what we may expect from the Government as a result of the right hon. Gentleman's remarks. Many of my hon. Friends have a good deal more sympathy with the relatively forthcoming approach of the Chancellor of the Duchy than with the secretive, bureaucratic and putting -everything - off - for - consideration - in -l0-years'-time arguments that we have heard so far from the Government Front Bench
. I attach great importance to this because I do not believe that measures to protect people openly and explicitly against the effects of inflation are themselves inflationary. That argument has been about for a long time. It has been a classic Treasury argument against doing anything about index-linked bonds or anything which would admit to the existence of inflation. The argument has always been that such action would only make inflation worse. That argument was used by Treasury Ministers when inflation was at 2 1/2 per cent., 3 per cent. and even 5 per cent. Now, according to the National Institute, it is running at about 17 per cent. a year, but Treasury Ministers still tend to fall back on the same old argument that it will get worse if we do anything to protect people from the effects of it.
Ordinary observation and conversation with people on the factory floor, in clubs 1245 and in pubs, and with all the people one meets in the course of being an MP shows that this belief flies in the face of the common sense and logical way in which people behave. Many believe, rightly or wrongly, that they have been losing out to the forces of inflation, and that is leading them to increase their demands beyond what they would otherwise have been. We should make a significant contribution to the long-term fight against inflation if we could simply convince more people that they are being effectively safeguarded against the constant erosion of their standard of living. This and other amendments could make a contribution towards that if they were accepted.
My hon. Friend the Member for Worthing (Mr. Higgins) has already touched on the subject of the poverty tax or the wages trap or whatever we wish to call it. That is one aspect on which we should like some elaboration from the Chief Secretary. The trap has been getting worse, and the Budget accentuated that trend in some respects. It is likely to go on getting worse so long as the situation exists in which Governments feel a duty, and in some cases actually have a legal duty, to increase these benefits in line with inflation while they have no such duty in relation to the tax system. More and more people who are receiving social benefits will also be caught up with the tax system, and, by definition, that makes the problem of the poverty surtax worse and extends it to new groups.
We are debating important matters. We cannot expect to solve all the problems in a discussion on one amendment, but we are entitled to know more about the Government's thinking than we have heard so far. In particular, we are entitled to know more about their thinking in the light of the remarks made by the Chancellor of the Duchy of Lancaster recently.
§ The Chief Secretary to the Treasury (Mr. Joel Barnett)
We have had a very interesting debate. It would be interesting to debate the mind of my right hon. Friend the Chancellor of the Duchy of Lancaster. But the amendment is about possibly indexing the married and single allowances. I do not think that that was precisely what my right hon. Friend was talking about in what was no doubt a very enlightening speech.
§ Mr. Higgins
My hon. Friends and I were relying on Press reports, which may have taken the remarks of the Chancellor of the Duchy of Lancaster rather more widely than he intended. Is a copy of the speech available in the Library? If so, we shall perhaps have a more accurate report than the Press interpretation. Many of my hon. Friends and I thought that the right hon. Gentleman's speech went beyond index-linked bonds and so on, that it related to the general question of indexation, and went a great deal further than any ministerial statement had gone previously.
§ Mr. Barnett
We are all fascinated by the thinking and the remarks of my right hon. Friend. If there is no copy of his speech in the Library, he will no doubt note what the hon. Gentleman said and make sure that it is placed in the Library. But it is not always possible to put a Minister's thoughts in the Library.
I was about to deal with the specific question of the cost of the amendments. I am advised that it would be £740 million in a full year and £590 million in 1974-75. I gather from the speeches of Opposition Members in this very pleasant debate that they do not consider that to be a very large sum.
§ Mr. Newton
Does the hon. Gentleman realise that the counterpart of that comment is that the process of inflation alone has taken £740 million from taxpayers in less than two years?
§ Mr. Barnett
I shall come to indexation and the points made in the debate, but I was giving, as I was asked, the cost of the amendments this year—not last year or two years ago, but what they would cost now in a full year and in 1974-75. I hope that that will enable the Committee to understand what acceptance of the amendments would mean, although I gather that the Opposition do not propose to vote on them.
We have already, under the clause, increased the married allowance by £90 and the single person's allowance by £30, at a cost in a full year of £489 million. That did not go as far as Opposition Members wanted, but it was a substantial and costly increase both in 1974-75 and in a full year thereafter.
The hon. Member for Worthing (Mr. Higgins) and many other hon. Members 1247 [MR. BARNETT.] asked "Why not more? Why not go back to 1972 levels?" Hon. Members also referred to the poverty trap—the poverty surtax, as it has become known—and asked whether what has been done in the clause has made the position worse. It is a somewhat complicated matter. The figures for family income supplement make-up levels are £25 a week for a one-child family, £28 for a two-child family, and £31 for a three-child family. The tax starting points are £21.25, £24.86 and £28.48 respectively.
The differences between those figures and those quoted by the hon. Member for Worthing are accounted for by his having overlooked the clawback deduction. I do not criticise him for that, because the clawback is very complicated and has often been criticised. However, it cannot be denied that if the basic rate goes up it is obviously higher at the point of poverty surtax. I do not dispute that; the hon. Gentleman is absolutely right. But that does not alter the fact that if we are increasing allowances, even if not by as much as Opposition Members would like, we are to that extent taking some people out of tax altogether.
I shall come to the whole question of how much further we might have gone or should have gone in terms of indexation. I notice that most hon. Members referred not to fiscal drag but to inflation, and there is a difference between fiscal drag and inflation fiscal drag, as I am sure every hon. Member present will be aware. Before coming to the question of indexation, I want to deal with the disincentive arguments.
§ Mr. Higgins
1 am sure that the hon. Gentleman is right in what he said about my not allowing for clawback, but the figures he has just given seem to me to reinforce rather than to detract from my argument that the overlap is greater rather than less than I had supposed. That being so, it would appear that the poverty surtax effect is worsened, although the Chancellor of the Exchequer seemed to think a few days ago that he had made it better, or, at any rate, had not made it any worse. Does the Chief Secretary agree that a change to a tax credit scheme would overcome that difficulty?
§ Mr. Barnett
Whether we can deal with it by a tax credit scheme is an 1248 entirely different matter. We debated it at great length in a Select Committee, of which the hon. Member for Eastleigh (Mr. Price) has spoken. It would depend on the kind of tax credit system. All that I and a number of my right hon. and hon. Friends said in the Select Committee was that the tax credit scheme that the previous Government sought to introduce was wholly unsatisfactory to us in many ways. However, that is not what we are dealing with now. It is certainly true that a form of child endowment, which was envisaged in that tax credit system, would help. But it was made clear in the Select Committee that there is no need for a tax credit system to have a child endowment. That was made clear when it was recognised that the child grant cash payments would be made payable to the mother and would not be part of the tax system. Therefore, it can be done. Indeed, the previous Government accepted and recognised that point. They had in mind to introduce the child endowment system before the tax credit system was introduced. The two matters are separate and nothing necessarily to do with a tax credit system.
§ Mr. Higgins
It is true that they are separate matters, but the Minister has introduced an extraneous red herring— namely, child endowments. I am making a simple point about the threshold. Is it not the case that an overlap and a corresponding poverty surtax can be avoided by introducing a tax credit system?
§ Mr. Barnett
I shall expand a little on what I have already said. We can deal with one part of the tax system by having a tax credit system, but that must depend on the effect elsewhere. If in the process of having such a system we created a regressive tax system across the board, which I believe the scheme proposed by the previous Government would have created, I would consider that to be unsatisfactory.
§ Mr. William Clark () Croydon, South
Surely the Minister is wrong. The evidence that we received from the Inland Revenue proved conclusively that the tax credit system need not be regressive. Lower income bands can be introduced. Such a system would be administratively a little more costly but it is untrue to suggest that we proposed was certainly not regressive.
§ Mr. Barnett
The hon. Member for Croydon, South (Mr. Clark) will know only too well, as he was the Chairman of the Select Committee, that the matter was discussed in detail. I was not convinced. I know that I was unable to convince the hon. Gentleman.
§ Mr. Barnett
That is a fact of life. Who is right and who is wrong will be found in due course. Meanwhile, we are not having the tax credit system proposed by the previous Government.
Perhaps I may revert to the amendments. There is a disincentive element at this level that applies particularly to widows, as the hon. Member for Harwich (Mr. Ridsdale) mentioned. No one has ever doubted that there is a disincentive effect of some kind. There is such an effect at all kinds of taxation levels. That matter is raised constantly by the Opposition. They refer particularly to the highest rates of taxation.
I know that many hon. Members have referred to the disincentive effect for widows and others at the lower levels of taxation, but, as has been fairly pointed out, much of that is to do with the earnings rule. That has now been increased, and we shall have to consider whether we can increase it much more. Of course, the cost will have to be considered but such a course would be almost certainly more helpful than anything we can do in the present context.
I recall the former Chief Secretary, the right hon. Member for Wanstead and Woodford (Mr. Jenkin) once saying when we were debating the disincentive effect, and especially at the higher levels of income, that although there was such an effect at the poverty surtax level it did not seem to be effectively a disincentive to most workers. I have no doubt that in some instances there will be a disincentive effect but we are also faced with the problem of just how much tax relief we can give.
I have already pointed out how much we have given in the clause as it stands and how much it would cost to do what has been suggested in this group of amendments. We cannot afford that now. Perhaps I might deal with the principle of the argument that the hon. 1250 Member for Gloucestershire, South (Mr. Cope) and many other hon. Members made—namely, the need to index personal allowances. The idea was to take the indexing back to 1972 levels.
§ Mr. Beith
I do not wish to disturb the Minister's intellectual train, but before he leaves the disincentive effect will he note that I was referring primarily to widows below pensionable age who would not benefit in any way from the relaxation of the earnings rule? That is a separate but important point. Widows will not be impressed when they are told that the fact that they stay on at work— often they do so as they value the company which they enjoy while working as much as the small financial gain— means that it is not necessary to increase the allowance.
§ Mr. Barnett
The hon. Gentleman is wrong. We have increased the allowance generally. That concerns widows and many others. I do not dispute that widows have a specific problem, and I have a great deal of sympathy for the problem of many widows, but we must consider the amount of revenue that.we, need to raise to do many of the sort of things that we have done already, which, as I understand it, no hon. Member has yet wanted to see undone. The amount that we can do at any given time is dependent upon the circumstances. That is the point that I am making. I am not saying that there is no need to help widows or any other deserving group of taxpayer.
§ Mr. Barnett
We have given considerable help to the pensioners this year by a direct increase in pensions and in personal allowances. My hon. Friend is tempting me to go wide of the amendments. I know, Mr. Thomas, that you would frown on me for going so wide.
I now turn to the arguments that have been advanced on behalf of indexation. The hon. Member for Gloucestershire, South pointed out the need to revert to certain levels and to tie allowances to any increase in inflation. We debated this matter rather late one night and I made one or two remarks which were not entirely acceptable to all hon. Members. I do not know whether those 1251 [MR. BARNETT.] remarks were acceptable to the Opposition Front Bench. I should be interested to know whether it is in favour of indexation. That has not yet been made clear.
For the reasons that I have given, I do not think that it would be possible to index without substantial cost.
Reference has been made to honesty. I am not sure whether it is necessarily more honest to index allowances, assuming that it is desired to retain the same amount of revenue, and thereafter to increase the rates of tax. Conservative hon. Members may say that they would rather not increase or retain the amount of revenue that any given Chancellor has decided to raise in a particular year. 1 assume that would mean—and I am now forgetting the economic aspects—that it would be necessary to change some other taxes or to reduce the level of public expenditure, which again, I imagine, would appeal to some Conservative hon. Members. However, they are never specific as to which taxes they would reduce.
For these reasons, I believe that it would be just as dishonest, although I accept that one can make out a case in many ways for indexing threshold wage agreements, savings, and so on. But we are here talking not about the general question of indexation across the economy but about indexing personal tax allowances. I am not yet convinced of the merits of indexation in their case, given that there is need to obtain a certain yield from taxation.
§ 5.0 p.m.
§ Mr. Nigel Lawson (Blaby) We listened to the hon. Gentleman on the subject of indexation in the late-night debate to which he has referred. Once again we are hearing him putting the point in his customary good-natured obscurity. What he seems to be advancing as the greatest objection is the loss of revenue; but loss of yield also occurs as a result of bringing down the rate of inflation. Does he advance the same argument, therefore, against a reduction in the rate of inflation in that such action would reduce the yield to the Inland Revenue?
§ Mr. Barnett
I am sorry that I am obscure to the hon. Gentleman. I am sorry that I do not make myself clear. Of course we want to bring down the 1252 rate of inflation, but we are talking about tax yield and expenditure in this year. The hon. Gentleman may well argue—1 do not know whether he will—that if we reduced the yield in 1974-75 by the amount required to increase personal allowances in the way suggested in the two amendments this would help reduce the rate of inflation. I doubt it. A case might be made out that indexation over a long period could have the same effect. But we are talking now about personal allowances and the effect on the tax yield in 1974-75. I do not believe for a moment that one could prove that indexing personal allowances in this way would help reduce inflation in 1974-75 or in 1975-76. I suggest that it is not easy to show that the indexation of personal tax allowances would necessarily reduce the level of inflation.
Another point made by the hon. Member for Gloucestershire, South concerned the fact that the figures of tax allowances would become somewhat complicated and that those who were not accountants, or, one might say, mathematicians, might not so easily be able to check their personal allowances. That might well be the case. Canada has started a system of indexation. In the 12-month period ended September 1973, to get the new indexed allowances needed a factor of 147.200 divided by 138.025. In such circumstances, it becomes complicated. I am quoting these figures to show the difficulties. I know that it would be easier for some hon. Members than for others, but there has been considerable criticism of the system in Canada.
§ Mr. Higgins
I have some sympathy with the way in which the hon. Gentleman is struggling on this last point, because clearly there is a relationship here between whether, effectively, indexation has an influence, let us say, on wage claims, on the one hand, and whether the revenue that is being raised by the Government has, on the other hand, an effect on demand. It is a fairly tangled web which is not easy to disentangle without the aid of a blackboard, as my hon. Friend the Member for Eastleigh (Mr. Price) has said. But what the hon. Gentleman has not covered in this context is what the figure would be to restore the real value of the allowances. I am sure that it must be in his brief. 1253 What would be the figure which would have the effect of restoring the true value of the allowances? We have all asked for the figure. We want to know whether the amendment is merely adequate to have this effect or, given the recent inflationary effect of the Budget, whether it would be effective now despite the substantial figures suggested.
§ Mr. Barnett
I would be keen to pursue a debate on this with the hon. Gentleman if only he would tell us where he himself stands on it. Does he support the principle behind the amendment, or does he not? If we could know that, we could have a more reasonable debate. I have made my position clear, and I would be happy if he would make his clear.
§ Mr. Higgins
It is not unusual for the Opposition to ask for factual information which only the Government have. My hon. Friend the Member for Gloucestershire, South (Mr. Cope) asked a specific question. Does this amendment simply allow for the effect of inflation, or is it inadequate to do so, or is it too great to do so? That is a simple, factual question of the sort which Oppositions have reasonably asked over the years. It is a question of asking for facts and not of stating opinions. We await with interest the hon. Gentleman's answer to this simple question. I am sure that his brief contains it. There is no need to stonewall on the issue.
§ Mr. Barnett
I have the answer here. but I was interested to know whether the hon. Member for Worthing agreed with the hon. Member for Gloucestershire, South. The answer is that, taking inflation levels up to April this year, the increase would be 26.9 per cent., which would put the allowance at £983. That is the figure that would be required.
§ Mr. Higgins
That is not a very good answer. The hon. Gentleman will have to consult his officials further. We are discussing two amendments one concerning the married allowance and the other the single allowance. The hon. Gentleman cannot produce just one figure for both. We must have the figures for the married allowance and the single allowance. Nor is it any good quoting the figure for April. The effects of the Budget 1254 were reflected in a substantial increase in the cost of living. The figure for April is not good enough. Can we have a more up-to-date figure?
§ Mr. Barnett
The answer is "No, you cannot". The figure for the single allowance is £753. I hope that that helps the hon. Gentleman to make up his mind about what he is in favour of, but I doubt it.
I turn now to the relativities of the single and married allowances. The hon. Gentleman made the point that we may have the balance wrong. I will give him the relative percentages we have now with the increase in the allowance made by my right hon. Friend. It becomes 1.38 to 1 compared with 1.30 to 1. I do not know whether the hon. Gentleman would consider this over-generous to a married man, but there is clearly an argument about what is the correct balance of relativities between an allowance which should be given for a married man and an allowance which should be given for a single man. I would not necessarily say that 1.38 to 1 is precisely right, or that 1.30 to 1, as it was before, was precisely right.
In 1972, for operational reasons, the same increase in personal allowances had to be given for the married allowance as for the single person's allowance. Whether the balance is right between the two, I do not know. I would say that there is at least an argument that a slightly bigger margin to the married person is more reasonable than not. That is all I say in favour of that case, and no more, because it is impossible to say whether the balance is right. The hon. Member may be able to say that 1.30 to 1 was the right balance, but I do not believe that that is possible.
§ Mr. Nigel Lawson
A moment ago, after persistent questioning by my hon. Friend the Member for Worthing (Mr. Higgins), the Chief Secretary produced these figures showing that in order to keep pace with inflation the married and single allowances should be increased to £983 and £753 from £865 and £625 respectively, as they now appear in the Bill. Can he tell the House how many people are being brought into taxation who would otherwise not be taxed because of the figures being what they are in the 1255 Bill and not the figures that he said would be necessary to keep pace with inflation?
§ Mr. Barnett
The number of people who would be taken out of tax if we increased the allowances in this way would be about 2 million. But if the allowances were increased by even larger figures, 5 million people could be taken out. I do not see the strength of that argument. Clearly, the amount of tax paid could be reduced by increasing personal allowances. Equally, the level of direct taxation could be reduced by reducing the standard rate of tax.
§ Mr. Nigel Lawson
As the Chief Secretary says that he does not understand the argument, may I put it more simply? The argument is that if allowances do not go up at the same rate as inflation, the number of people taken out of taxation at the beginning of the year is smaller than the number who go into taxation during the course of the year, so that one ends up with more people rather than fewer being taxed.
§ Mr. Barnett
I hope that what the hon. Gentleman has just said is obvious to every hon. Member present. It is certainly obvious to me. Perhaps the hon. Gentleman will put it in writing if he wants to make it clearer, but it is perfectly clear to me that he is right and I do not dispute it. It is equally true that, given the present level of inflation, during the course of the year more people will be brought into tax. That is a fact, and I do not dispute facts of that kind. The only question is whether, given the cost of the amendments, the Opposition wish to press them to a Division and to reduce the yield from taxation by this very large sum of £740 million in a full year. If they do, I can only advise my hon. Friends to vote against them.
§ Mr. Norman Lamont (Kingston-upon-Thames)
As one who supporting the original indexation amendment late the other week, I should like to support my hon. Friend the Member for Gloucestershire, South (Mr. Cope). Since our first historic debate on this subject, the argument has moved a little forward and there has been increasing public discussion of the indexation of taxation allowances. It does not make much difference 1256 whether one has de facto indexation, as proposed in the amendment today, or the de facto indexation that was operated when my right hon. Friend the Member for Altrincham and Sale (Mr. Barber) was Chancellor of the Exchequer and when so many of his so-called tax cuts and tax handouts to better-off groups were merely indexation and merely allowed certain groups to stay where they were. As a result of the increasing debate, today there is more understanding of the effect of inflation on tax thresholds.
The Chief Secretary has put forward three arguments against the indexation of allowances and tax thresholds. He put forward some of them the other night. The first is the argument that to index allowances or thresholds would reduce the Government's room for manoeuvre That is how he put it the other night. Today it appeared that what he meant by that was that it was difficult for the Government to have the same level of expenditure if thresholds and allowances were indexed. If they were indexed, there would have to be tighter control of public expenditure.
Is that such a bad thing? Is it such a bad thing that we should move from a system in which increases in public expenditure can be financed by inflation, as is happening now? We should have increases in public expenditure consistent with what we can afford, and what we can afford should be consistent with maintaining our living standards. That is what indexation is all about.
The second argument was that it would not be honest to index tax allowances and thresholds if at the same time we had to put up the tax rate. I do not know that that is more dishonest than the present system. Some might regard it as a more realistic expression of the taxation relationships of different groups What is surely dishonest is the present situation in which the Chancellor of the Exchequer can pretend to cut tax when, in fact, he is doing nothing of the sort, when he is running hard to stay in the same place. That is what is dishonest, not the approach that the Chief Secretary criticises.
The third argument, which the Chief Secretary used the other night but which. 1257 I note, he did not repeat today—I am glad of that, because it struck me as a rather dangerous argument—was that the Government of his party did not regard the present distribution of income as fair. As he was responding to arguments about indexation, what he appeared to be near to saying was that one should use inflation as a means of redistributing income within society. If one wants to argue about the distribution of income in society, one should do so openly in the House of Commons and not by any back-door method, not by any concealed method.
The Chief Secretary also said today that indexation would not necessarily reduce inflation. No one is suggesting indexation as the panacea for curing inflation. However, when one has the policy, advocated this morning by the National Institute for Economic and Social Research, that we ought to allow wages to increase by the same percentage as prices increase during the coming year, it is important that that should be combined with indexation.
If we simply say that wages are to increase by the amount that prices increase, that will not mean that living standards are kept constant. As my hon. Friend the Member for Eastleigh (Mr. Price) pointed out, unless the tax thresholds and allowances are indexed, increases in pre-taxed incomes bigger than the rate of inflation are required to keep living standards constant. That is where people are being swindled and that is where there is so much pretence. It is pretended that if there is a 10 per cent. increase of salaries or wages that will keep pace with a 10 per cent, rise in inflation. In fact, that is not so, and the effect is more marked the higher one goes up the salary scale.
Indexation would help towards a more rational economic policy in two ways. First, indexing the thresholds would ensure that living standards remained constant, and in an incomes policy one could prevent or discourage people from acting on assumptions about their living standards that might prove to be unfounded. Secondly—and this is the main reason why I am in favour of indexation —the relationship of one income group to another in our tax system should be defined in legislation so that income is 1258 not redistributed by the back door, by stealth, or by inflation.
§ Mr. Cope
I recognise that in this debate we have not, as yet, convinced the Chief Secretary about the arguments in favour of this amendment. I did not think that we would. I hope that we have clarified the issues and some of the arguments about the effects of inflation. I had not realised, Mr. Thomas, that you had been in the House such a long time as my hon. Friend the Member for Eastleigh (Mr. Price) seemed to imply. If that is the case, you must have seen many arguments come and go, some of which take many years to sink into Governments. This is an argument which will not go away.
The Chief Secretary asked whether it was more honest to phrase things one way or another. He knows and I know that there are people in our profession who deal in degrees of honesty. I was taught that a thing is either honest or is not honest. I do not think that there are degrees. It is an absolute condition. It seems that it is dishonest for the Government to say that they are giving money to taxpayers when that is not what the Chancellor is doing. What he is doing is failing to compensate for inflation. It would be more honest, if we are to use such a term, for the Chancellor to say "I regret to say that inflation is going on. Therefore, we need to pay more for Government expenditure, and, therefore, we have to increase the personal allowances relative to their real value."
I was surprised that the cost was as low as £740 million in a full year. This argues in favour of the amendment. The changes being made by the Finance Bill will cost £489 million in a full year, and I thought that my amendments would at least double that. It is an indication, at any rate, of the amount of money which is being taken away. The Chief Secretary told us that 2 million people would be relieved from tax altogether as a result of these amendments. To put it another way, that means that there are 3,000 people in every constituency—in Heywood and Royton if it is an average constituency, which I am not implying it is in any way—who will have to pay tax this year as a result of inflation and as a result of the Government failing to accept these amendments.
1259 [MR. COPE.] I forget what the Chief Secretary's majority is but 3,000 will certainly dent it a little. The Chief Secretary said he did not know what the right ratio was between married and single people. That rather goes against what the Chancellor said in his Budget speech when he seemed quite certain of what he was doing in proposing to alter the ratio.
The crux of what the Chief Secretary has to say in resisting the amendment was that we cannot afford this at this time. The question really is whether taxpayers can afford this increased tax bill at this time. That is what we should look at. There was some argument between those concerned with the Select Committee about whether the tax credit system was or needed to be progressive. The kind of tax which we are now debating is not only progressive in operation but, because of inflation, progressively progressive. All the time it is eating further down into incomes and affecting the way in which people pay tax.
Of course these are awkward figures, and I entirely accept the complexity argument put forward by the Chief Secretary. This was his strongest argument against indexation in terms of an applied formula automatically operating each year. The tax system is sufficiently complex. Nevertheless there can be de facto indexation at any rate, which would get round the complexity argument. That is the way in which the amendments suggest it should be done. It is the Government's duty to decide how much tax should be raised. I wish that they would be more honest about it, in the terms used by the Chief Secretary. 1 recognise that they do not wish to allow for inflation in this way, that they do wish to bring 3,000 people in Heywood and Royton and elsewhere into the tax system. That being the case, I beg to ask leave to withdraw the amendment.
§ Amendment by leave, withdrawn.
§ Mr. Newton
I beg to move Amendment No. 49, in page 8, line 32, at end insert:(c) provided that if a married claimant proves that at any time within the year of assessment he or his wife with him reaches the age of 65 years or upwards for the figure £865 shall be substituted the figure £950. And if a single claimant proves that at any time within the year of assessment he reaches the age of 65 1260 years or upwards for the figure £625 shall be substituted the figure £675 '.This amendment seeks to raise the personal allowance for those aged over 65 in the case of married claimants from a figure of £865 as provided for in the Bill to a figure of £950 and for single pensioners from the £625 proposed in the Bill to £675. It will readily be appreciated that the effect of this in round figures, in respect of retired elderly taxpayers, would be to give married couples an extra tax reduction of around £30 a year and the single taxpayer a reduction in taxation of around £18 a year.
I am happy to respond to a demand from the Labour benches, since during the course of the Chief Secretary's speech on Amendment No. 36 his hon. Friend the Member for Coatbridge and Airdrie (Mr. Dempsey), the solitary occupant of the benches below the Gangway, said something from a sedentary position which sounded like "What about the pensioner?" This amendment is designed to give some additional help to pensioners through the tax system.
It is no new departure to have special treatment for elderly taxpayers in the tax system. Apart from the existing age exemption, to which the Chief Secretary will no doubt refer, and which is the subject of a later amendment, there is the old-age relief, designed to give elderly taxpayers some relief from taxation on investment income. The only reason why we no longer have such a provision is that my hon. and right hon. Friends, when last in Government, took action to extend relief on investment income to all taxpayers. This more than compensates elderly taxpayers for the loss of the age relief provision.
The amendment was not tabled specifically as an indexing amendment along the lines of Amendment No. 36, although on the figures given by the Chief Secretary it would, I suppose, in rather broad terms, take the personal allowances for married and single pensioners to around the level which would be appropriate on the figures he gave us to keep pace with inflation over the past two or three years. The main reason why the amendment has been tabled is that it is the elderly in our society who suffer most through inflation and who have had a very difficult time over the past year and will continue to have a difficult time. This is one way 1261 in which we can help some of them— rather more than are helped by the Finance Bill proposals or those put forward by the Secretary of State for Social Services.
In my speech on the last amendment I referred to figures spoken of quite commonly for the rate of inflation this year. This morning the National Institute is suggesting rises in prices of around 17 per cent. for this year. We have had figures of anything between 15 per cent. to 20 per cent. mentioned by hon. and right hon. Members opposite, including, I think, the Secretary of State for Prices and Consumer Protection. There is no doubt that we shall have the worst inflation, the worst single rise in prices this year, that anyone in this House can remember. That will have serious effects on many elderly people.
No doubt the Chief Secretary will refer to the increase in pensions proposed by the Government. As has been said, none of us wants to shoot Santa Claus. We are delighted about the proposed increase. But it has not been paid, and we do not know when it will be paid. I very much doubt whether the Secretary of State for Social Services knows when it will be paid, because the social compact does not operate in this respect. The civil servants in the Department of the Secretary of State for Social Services have refused to do the necessary work and the pensioners do not know when they will get the increase they have been promised. All that is clear is that it is unlikely to be paid as early as 22nd July, the date originally promised.
Meanwhile, pensioners see many other people benefiting from the threshold provisions introduced under the pay and prices policy of the Conservative Government. They see other people receiving help in solving the problems of inflation. The only thing which has happened to some elderly people in the past few months is that their taxes have been increased by the Budget. I recognise that that does not apply to all pensioners, but the incomes of many elderly people living on retirement incomes have decreased as a result of what has been done by the Government. That will remain true for a number of retired people even after the pension increase has been paid.
1262 I cannot accept the implicit argument of right hon. and hon. Members opposite and of some of the people in my constituency who have criticised me for advocating a higher threshold for the investment income surcharge in relation to elderly people that we are talking only about very wealthy people, the Charles Clores of the retirement world. Some of the people paying extra tax and facing extra burdens as a result of the Budget are not the poorest of pensioners but they are a long way from being the wealthiest members of society.
It is important to recognise that even people who may not be poor by the standards of, say, the supplementary benefits scheme can suffer real hardship if as a result of the changes made by the Government their standard of living starts to fall. That is the effect of some of the events which have happened to some pensioners in the last few months. At an earlier stage of the Committee proceedings I recalled the Chancellor of the Exchequer talking at the Labour Party conference last year about extracting howls of anguish from wealthy taxpayers. I said that, judging from the people I saw in my constituency, the only people who had been howling with anguish in the last few months as a result of the tax changes were the elderly and retired people who did not know how they would meet the bills with which they were faced, including the bills arising from the basic problem of inflation.
It has to be said, even in a debate which I would not want to turn into a political assault on the Chief Secretary, that that is different from the impression given to elderly taxpayers when the Labour Party was in opposition. The impression given then was that if taxation was increased it would be on the very wealthy and on those with higher incomes. There was no suggestion about people with relatively modest retirement incomes having to bear part of the burden. Therefore, these people legitimately feel that they have been let down and misled as a result of what has happened since the election.
Some of the people who come to see me are facing rates increases of about 100 per cent. or even more this year. I recognise that the Chief Secretary cannot personally be blamed for that, but it is 1263 part of the situation which we are discussing. However, something for which his colleagues can be blamed is that these people are also facing a 70 per cent. increase in the charge for the electricity which they use for heating their homes through the increase in off-peak rates for night storage heaters. I have talked to enough elderly people to know that the propaganda for this form of heating was particularly attractive to old people. They were offered a form of heating which was, allegedly, economic to install and to run.
No doubt the Chief Secretary will argue that the amendment would help elderly taxpayers all the way up the scale regardless of how wealthy they were. The increases which I propose perhaps would not mean much to the wealthiest taxpayers, but they would help those who are not particularly well off. That is where the bulk of the relief would go, and that is where the shoe is pinching.
The amendment would help to fill a significant gap in the Government's policies. They are doing something to help basic national insurance retirement pensioners and supplementary pensioners and to help those who benefit from the age exemption, but they are doing nothing to help—in fact they are increasing the tax burdens on—people who have a little bit more than that but can by no means be described as wealthy. It would be appropriate to fill that gap and to recognise an ordinary basic fact of life, which is that elderly people tend to have a more difficult time than the rest of us. It is reasonable that that fact should be recognised in the tax system by giving them a higher personal allowance.
My proposal would help in two other respects. First, it would help those who live in part or wholly on fixed incomes and are in the most difficult position of all. I am talking primarily of people on older types of pension schemes which have no effective inflation-proofing. They are dependent on their pensions for a significant part of their standard of living, and their standard of living is being significantly eroded. This is a problem to which neither side of the House has given significant attention in recent years. The amendment would help to benefit some of these people.
Secondly, the amendment would help to reduce the great resentment about the 1264 fact that pensions are taxed. By reducing the tax on many pensions we would lessen that resentment.
The amendment would not be enormously costly to implement. Perhaps the Chief Secretary would say precisely what it would cost. It would fill a gap in the Government's policies in a cause which we all support. It would help a number of people who are having a very difficult time. I hope that the Chief Secretary will consider the amendment sympathetically.
[Sir M. GALPERN in the Chair.]
§ Mr. Higgins
I was concerned when during the debate on the last amendment one of my hon. Friends declared an interest by saying that he was in receipt of a marriage allowance. I suppose that I should have done the same. The Chief Secretary did not declare his interest either. That illustrates the interesting complexity of the motion which the House recently passed on the subject of the declaration of Members' interests.
§ Mr. Higgins
No, because I am not over 65. Whether I should do so because I have parents and because of the constituency which I represent I do not know.
I congratulate my hon. Friend the Member for Braintree (Mr. Newton) on the originality of the amendment. Various allowances have been made for elderly people over the years, but I cannot recall an amendment of this sort being proposed before, still less implemented by a Government. The Committee would do well to consider the amendment carefully. I am not sure that it is not one that the Government should be asked to adopt and which I should ask my hon. and right hon. Friends to support. That will depend on the answer given by the Chief Secretary.
The first question we must ask the Chief Secretary is: what is the cost of the amendment? I imagine that the cost will not be so great as was the cost of the previous amendment, but it may be quite a substantial sum. In this context the Committee finds itself in some difficulty. Over the years it has been normal for Oppositions, acting responsibly, to 1265 take account of the amount of money which any particular amendment may cost. On the other hand, Oppositions normally operate within the framework of a set of forecasts provided by the Chancellor of the Exchequer. This year for the first time in several years the Chancellor has failed to give a forecast for the first half of next year.
Speculation in the Press and recent statements by the Chief Secretary—he cannot hide behind the Chancellor of the Duchy of Lancaster on this amendment— suggest that further reflation is necessary. The National Institute of Economic and Social Research also takes the view that perhaps aggregate demand will lag in the latter half of this year. Therefore, on grounds of equity and compassion and also on the ground of economic management the Committee should accept the amendment. We should like to know the cost of the amendment and whether the amendment is consistent with the line which the Secretary has taken in the last few days on the management of the economy. I hope that the Chief Secretary will be able to give a sympathetic answer.
I wish to put forward several arguments in support of my hon. Friend the Member for Braintree. Most hon. Members have long regarded the social contract as a figment of the Prime Minister's imagination. The position is becoming bizarre when, on the one hand, the TUC is said to be in favour of higher pensions and, on the other hand, trade union members responsible for paying higher pensions are refusing to do so on the date announced by the Government. That is a remarkable situation which confirms the view we have always taken about the social contract. Pensioners will not only suffer from the effect on prices of inflationary wage claims but will suffer from this industrial action. There is, therefore, a case for considering whether we should operate through the tax system as well as through the pensions scheme whenever an increase proposed by the Government is implemented.
In their election manifesto the Government put forward proposals for increasing the level of national insurance pensions paid to married couples and individuals. It is true that the Chancellor of the Exchequer made speeches to the effect that there would be increases in 1266 taxation, but the Government did not bring together their two policies of increasing pensions and increasing the rate of tax paid on pensions by pensioners who pay income tax. To that extent the real value of the pension has been reduced.
We should give special attention to pensioners who are on fixed incomes. The crucial point is whether some sections of the community suffer a reduced standard of living as a result of the Government's action. I know from experience in my constituency that that is often so for people who are in receipt of a national insurance pension plus some other income. Pensioners below the tax threshold are covered if necessary by the supplementary benefit provisions. There is another group who are in receipt of a national insurance pension but are given age exemption from income tax. They are covered in Clause 4. There is also the group who are above that limit who receive a national insurance pension—or a part pension if they are over 80—and pay income tax. It is that group at which the amendment is directed. I think I am right in saying that this group has become neglected. These people will be paying tax at a higher rate.
Despite the complexity of the matter, and although it might be better to deal with it by a tax credit scheme, I feel that we should give attention to this group of people. There is an inter-relationship of the three groups—the below-the-threshold supplementary benefit group, the above-the-threshold age exempted group and those who are above the age exemption limit but pay tax.
§ Mr. Ridsdale
Does my hon. Friend realise that the group to which he is referring is the group that is hardest hit by the great increase in rates? Would not this be an excellent way of helping them?
§ Mr. Higgins
I agree. I was tempted to dub this a Dame Irene Ward amendment. I might equally have dubbed it an hon. Member for Harwich's amendment. The people in this group are those who are worst hit by increases in rates and other measures. It is a group to which the Committee should be sympathetic. The people in this group will not receive threshold payments under the 1267 counter-inflationary policy. They are the people whose standard of living is going down significantly because they are on fixed incomes and because of the effect of inflation.
Although those who are below the age exemption limit will benefit from Clause 11(4), the amendment is necessary to benefit those who are in receipt of a national insurance pension, are above the age exemption limit and are paying income tax. I hope that we shall have a clear answer from the Chief Secretary because we want to know the exact position.
The benefit which would flow from the amendment extends right across the incomes scale. We must recognise that as a result of inflation many retired people face difficulties, and the bulk of the cost will go to those at the bottom end of this group. I believe that there was an earlier allowance which was subsumed when we brought in the provision for earned income allowance extending the investment income provisions so that any sums were paid only at earned income rate. We must look at Amendment No. 49 in relation to our long-term proposals in the tax credit scheme. The amendment emphasises the importance of dealing fairly with a group of people in the community who on the whole in present circumstances are being unfavourably treated.
I hope that the Chief Secretary will be forthcoming in his reply and will say that the sums involved in implementing the amendment are not an impossible burden. If he accepts the amendment, I am sure that progress in Committee will be greatly accelerated.
Mr. Peter Rees (Dover and Deal): The present Government have effected considerable generosity to the old. I am sure that we welcome the increase in the old-age pension, although perhaps the Labour Government underestimated the practical difficulty of implementing the increase in July—and they have encountered further difficulties on which I shall not dwell at this moment. It remains to be seen whether their generosity will be sustained. I tend to doubt it. I doubt whether their action compares well with the various measures introduced by the Conservative Government. Indeed, the generosity 1268 of the present Government has been of a limited and partial kind. It has not extended to consideration of the burden of tax borne by the old.
I must agree that there is a measure of relief in Clause 11 for those over the age of 65 on small incomes, but there are many who come just above that level and, by today's standards, in no sense could be called wealthy. They may have a small income from savings in addition to their old-age pensions and pensions from the firms for which they worked; they might even have some income from small sums inherited from forebears. I know that this aspect of the matter will be considered sympathetically by the Chief Secretary, although I am not so sure about the reception it will receive by many of his Labour colleagues. The class of person to which I refer has been hit particularly hard in the last few years and is likely to go on being hit in succeeding years. Such persons have been heavily hit by inflation and will be considerably affected by the increase in the cost of the products of and the services given by the nationalised industries.
In my constituency I find considerable concern about the increase in electricity charges, and my constituents well appreciate how prices of domestic coal will rise in the autumn. The effect of increases in rates has already been eloquently dealt with by some of my hon. Friends. I do not think the Chief Secretary appreciates the impact of the rate increase on the class of persons to whom I refer. We all feel the effects of the increase, but I must emphasise that they feel it particularly badly.
Then we must also consider the increase in direct taxation. The people in the bracket covered by the amendment face the threat of a real cut in their standard of living. The kind of projections they made when they retired are proving to be utterly false; in many cases they are having to contract rather than expand their expectations. Amendment No. 49 is designed to help this class of person.
I have no doubt that the Chief Secretary will produce some estimates of the cost. We are anxious to hear how he costs the amendment. I am always a little sceptical about specious costing exercises produced at the Government Dispatch Box, but I shall be interested to 1269 hear what the hon. Gentleman says. I do not think that the exercise will be as expensive as he no doubt will lead us to believe. Whatever the cost, the amendment seeks to give elementary justice to a class of the community who have suffered and are likely to go on suffering, particularly as a result of the Chancellor's measures.
Therefore, I hope that, whatever the cost, the Chief Secretary will be a little more generous this evening than he was when a similar amendment to Clause 5 was dealt with on the first day of the Committee's proceedings. On that occasion, despite eloquent speeches from both Conservatives and Liberals, the Government treated our provision with callous disdain. I hope that the Chief Secretary may have mellowed a little over the recess. Perhaps his contact with constituents has given him a little more appreciation of the impact of the Chancellor's proposals in the country as a whole. I hope that he will be a little more generous this evening.
§ Mr. Nicholas Ridley () Cirencester and Tewkesbury
I was sorry to see that during the speech of my hon. and learned Friend the Member for Dover and Deal (Mr. Peter Rees) the hon. Gentleman the Chief Secretary was grinning with glee at the thought of the plight of the elderly. He shook his head violently when my hon. and learned Friend suggested that he might have visited his constituents during the recess. I hope that I misinterpreted the hon. Gentleman's physical gestures and that when he replies he will be a little more sympathetic to our arguments.
I wish to emphasise one point with great sincerity. In the 15 years I have had the honour to be a Member of this House I have never before met so many elderly people who have such fears about the future. They are reaching a point close to despair in view of what the present Government have done and also as a result of the general inflationary situation and the economic storm clouds on the horizon. Although the young can emigrate and can adapt to the new situation, the elderly are trapped. They have their incomes such as they are, but little or no means of increasing them. An elderly couple may have their house, and it may be a rather bigger house than they. 1270 should have, but no doubt when they retired they thought that they could afford that property. However, they now find that rates and taxes are piling on to them and menacing them to a point when they are almost unable to maintain any sort of standard of living at all, especially when they now learn of all the extra burdens which are to be imposed upon them. An increase of 50 per cent. in the rates in my constituency has had a catastrophic effect on the confidence of many old people. At a time when incomes are controlled and their pensions are rising by only small amounts, they do not understand why they are being asked to bear extra burdens of 50 per cent. on rates and perhaps 30 per cent. on electricity charges. My hon. Friend the Member for Braintree (Mr. Newton) was perfectly right when he said that we had to do something to help them.
My hon. Friend the Member for Braintree is being very modest in asking only for what I calculate to be a £33 tax remission for people over 65, and then only for those who do not come within subsection (4)—the people under the £1,170 limit if they are married. Even if the amendment were accepted, it would not cover some of the rate increases that my constituents and others will have to bear.
In supporting my hon. Friend the Member for Braintree, I urge the principle of the amendment upon the Chief Secretary. Whatever the amount may be and whatever the economic consequences, we shall no doubt hear from him. But in principle it seems to be more sensible to adopt the suggestion contained in the amendment than to adopt the principle of the old-age relief.
In the case of someone who is under 65 we do not say "If your income is less than £1,000 you pay no tax, but if it is more than £1,000 you start paying tax from the first £1 that you earn." We give a personal or married allowance, and the deduction of tax starts after the total allowances have been exceeded. So, if we wish to give special help to the elderly, it seems to be infinitely preferable for it to be done through a system of higher personal allowances than people under 65 receive than by resorting to the over-65 relief.
1271 The latter method means that someone whose income is £1,080 will be suddenly brought up against a very steep marginal increase in the tax that he has to pay. It also means that in the end it is a certain small amount which is, so to speak, free of tax and that anyone who seeks to achieve a greater income, even in old age, is especially hard done by. So, whatever the Chief Secretary may have to say on this occasion, I should prefer him to give thought to the principle behind the amendment that the elderly should be helped by higher personal allowances rather than by any system of over-65 relief.
§ Mr. Ridsdale
I congratulate my hon. Friend the Member for Braintree (Mr. Newton), and I do so warmly in view of the fact that I happen to represent an Essex constituency. My hon. Friend understands very many of the problems of the elderly in Essex. Like my hon. Friend the Member for Cirencester and Tewkesbury (Mr. Ridley), I support the principle behind the amendment. This is an excellent way of helping some of the elderly people who are suffering great anxiety at the present time.
I agree with my hon. Friend the Member for Cirencester and Tewkesbury, who said that during his 15 years in the House he had never known a time when there had been greater anxiety. I can just top my hon. Friend's period here. I am in my 21st year as a Member of this House. I have never received such anxious letters from elderly people as those that have been in my postbag recently. Many of them refer to this as being "another nail" in their coffins. It is most disturbing to read their letters and the anxious expressions that they use, realising that they have to face a possible annual rate of inflation of 17 per cent.
I contrast them with a group of people I saw a few minutes ago who were advocating a 30 per cent. increase in their wages. We must not forget that it is the effect of vast increases in wages which has caused a great deal of the inflation that we see at present.
By means of the principle suggested in the amendment, we shall be able to introduce what might be called a threshold agreement into the tax system 1272 similar to that in the wages system. I think that it is only right for the Chief Secretary to accept the amendment.
My hon. Friend the Member for Worthing (Mr. Higgins) talked about this "special group" of people. They are people who have been hit hard by the Budget itself. They face an additional tax bill, and anything which can be done to help them should be done. I hope that the Chief Secretary will be sympathetic to the amendment, because I can assure him that many elderly people are in great despair.
§ Mr. Ian Gow () Eastbourne
I want briefly to support the amendment and to agree wholeheartedly with the speeches made by my hon. Friend the Member for Cirencester and Tewkesbury (Mr. Ridley) and my hon. Friend the Member for Harwich (Mr. Ridsdale).
The constituency which I have the honour to represent contains as high a proportion of retired people as any in the country, with the possible exception of that of my hon. Friend the Member for Worthing (Mr. Higgins). Anyone who fought the last General Election knows the extent to which inflation is a cause of real anxiety and despair among the elderly. It lies within the power of the Government to give the elderly some grain of hope that this administration understands the really serious effects that inflation has upon them.
Even if this modest amendment is accepted, given the rate of inflation which is in prospect of 15 or 17 per cent., it will be of only comparatively little help to the retired people who will benefit. I urge the Chief Secretary to accept the amendment. It will give some help to people who by definition are just above the line at which the basic retirement pension operates, who have probably saved during a lifetime of work, and who are precisely the people who need encouragement from the Government.
I hope that the Chief Secretary will accept the amendment and thereby give some hope to those who are being driven to despair by this Government and by the rate of inflation that is in prospect.
§ Mr. Joel Barnett
I want first to congratulate the hon. Member for Braintree (Mr. Newton) on moving an ingenious amendment of the kind that we have not 1273 previously discussed, as the hon. Member for Worthing (Mr. Higgins) said.
I say at once that of course I recognise the problems of the elderly. No one could not be aware of them, even if he were not mellowed after a two-week recess, although I assure the hon. and learned Member for Dover and Deal (Mr. Rees) that I was not able to spend even two whole days in my constituency. I was at the Treasury for the bulk of the time.
I should dearly love to take up the argument of the hon. Member for Worthing about the economics of the situation and the help that this amendment might or might not give to it. But, apart from the fact that it might be considered to be going a little wide of the subject matter of the amendment, I know that we intend to have an economic debate in Committee upstairs on Monday. For those reasons I resist the temptation to discuss the speech that I made a few days ago or the increases in rates and nationalised industry prices, which of course I am aware will hurt elderly people. However, those factors are not caused by the extent to which we increase personal allowances and how we increase them.
I want to take the two points. First, if we are to increase personal allowances for the elderly, is this the best method? Secondly, having given the allowances that we have in the Budget, is this the best way and should we spend the additional cost of the amendment by additional relief to the elderly or in some other way, if those funds were available? The cost in a full year would be £50 million. It would be £30 million in the year 1974-75. [Interruption.] I heard an hon. Member say "Peanuts". One can get a lot of peanuts for £50 million. But I shall return to that matter.
I want first to deal with the method adopted by the hon. Member for Brain-tree in the amendment and whether this is the right way to go. As the hon. Gentleman pointed out very clearly, what he is proposing to do is to give the relief not by increasing the age exemption but by giving a special increased personal allowance for the elderly, those over 65. As the hon. Member for Worthing rightly said, this has not been done previously. Since the date when it was decided to give relief, it has been done through age ex- 1274 emption. The problem of doing it in the way proposed is that it would seriously add to the complexity of an already complex tax system in relation to the elderly. With age exemption there is the tapering relief, the marginal relief that we know. Many elderly people find this very misleading. We shall be coming to that matter shortly on another amendment, so I shall not pursue that point. But elderly people find age exemption and the marginal relief somewhat complicated.
To that extent, I can understand the point made by the hon. Member for Cirencester and Tewkesbury (Mr. Ridley), that it would be a simplification to have, simply, an increased personal allowance for the elderly. That is absolutely true. But successive Government have preferred to give the relief by way of an age exemption with tapering relief, for the fairly obvious reason (hat by doing it in that way one directs one's assistance to those at the comparatively lowest end of income groups and gives nothing to the highest income groups—not only nothing to the highest groups but nothing above a fairly low level. If the amendment were accepted, we would have the two side by side. We would have an increased personal allowance for the elderly but we would still have the age exemption.
The hon. Member for Worthing questioned me on who would benefit from this and to which particular level the benefit would go. My answer will give an indication of just how complicated it would become and how very difficult it would be for elderly people to understand.
Elderly people with incomes somewhat above the age exemption income limit may benefit from marginal age exemption relief. But increased personal allowances for the elderly would reduce the point at which marginal age exemption relief runs out. Those with incomes above the run-out point would benefit, but those who, despite the proposed increase, would still benefit by having their liability calculated by reference to the marginal fraction would neither gain nor lose.
In other words, those with incomes above the current run-out point would get a constant benefit—unless they are higher rate payers. If their incomes 1275 come within the current run-out point— that proposed by the amendment—they will get a variable benefit. If they remain within the marginal zone, there will be no changes. I hope that that is clear to the hon. Member for Worthing. However, it only goes to show how complicated it would be. The system is already complicated enough with the relief, but if we added this provision many elderly people would find it very difficult to know whether to choose not to claim the age exemption.
§ 6.15 p.m.
§ Mr. Newton
I hope that the hon. Gentleman will forgive me for saying so, but it is becoming increasingly obvious that he spent the recess in the Treasury. I am not sure that it would not have served him better to spend more time in his constituency. This seems to be exactly the kind of argument which is always put up against doing anything of this kind. We all know that the tax system is complicated. That is why the Conservative Government wanted a tax credit scheme to simplify it. But the fact that the present Government are to delay any simplification cannot be used also as an argument for doing nothing to ease the position of people who are suffering from the present tax system. I hope the hon. Gentleman will forgive me for speaking with some heat on this matter. I spent a fortnight in my constituency during the recess, I saw many people in this age group who are desperately worried. Most of them would have settled for a little more complication and £30 less tax this year.
§ Mr. Barnett
I had not indicated whether I was accepting the amendment or whether we would be increasing relief for the elderly. I was talking of the principle of the amendment. I hope that the hon. Gentleman will acquit me of anything other than trying to deal with the principle of what he is trying to do in an ingenious suggestion. If one wants to give relief to the elderly, is this the best way to go about it? That is all that I am dealing with at this point in the argument. It would have been made no simpler or more difficult if, instead of spending some time in the Treasury during the recess, I had spent even more time in my constituency. That would not 1276 have affected the amendment or how it would be understood or fail to be understood by elderly people.
§ Mr. Barnett
I should be happy to have an omnibus debate on all the amendments to the clause, but I am afraid that I have to deal with this particular amendment, and it was this amendment with which I was dealing. I have tried to help the Committee by saying that if one is trying to help the elderly this is not necessarily the best way of doing it. As to whether, having decided which way one wants to help the elderly, one has the funds available to do that, that is another question. As I have said, in a full year this would cost £50 million.
I have heard many speeches from Conservative hon. Members who are obviously very sincere on this matter. The hon. Member for Eastbourne (Mr. Gow) and others represent a large number of elderly people living in their constituencies who are finding life very difficult. No one disputes that. It is only a question whether, on top of what we have already done in the Budget, we should take another £50 million to help that particular group rather than some other group. That is all that this matter is about in terms of cost and priorities. As will be known, in the Budget we have increased the income limits for age exemption by £110 for single persons and £170 for couples. In addition, we have given a very substantial increase in national insurance pensions.
I am informed that the tape at 17.23 hours stated that the Civil and Public Services Association's committee today decided to suspend its ban on uprating pensions and social security benefits increases. I hope, therefore, that it will be possible to pay the substantial increase in pensions in July.
§ Mr. Dempsey
Will this increased allowance prevent any part of the increased retirement pension from being clawed back?
§ Mr. Barnett
What we are talking about is giving an increased personal allowance over and above what every married or single person gets. That does not affect the point that my hon. Friend has in mind.
§ Mr. Dempsey
Perhaps I could make it a wee bit clearer. Will this allowance prevent any of the increase in pension from coming within the tax bracket?
§ Mr. Barnett
I do not think that my hon. Friend is talking about the amendment; he is talking about the increased pension, which is entirely different. There is no clawback on the increased pension as such.
I must regretfully tell the Committee, despite my considerable sympathy with the points expressed, that, because of all we have done already for the elderly and in view of the cost and the great complexity involved, I am afraid that I cannot recommend that the amendment be accepted.
§ Mr. Robert Carr () Carshalton
The Chief Secretary does not seem to have mellowed much. I fear that he comes into the category of people and articles like walnut trees—the more you beat them, the better they be. Since the mellowing effect of the recess does not seem to produce the desired results, we shall have to try some harsher treatment, but we shall do so with great regret and in the best of spirits.
I think everyone will welcome the news that the Chief Secretary has just given us, that the CPSA is calling off the action which looked likely to delay payment of higher pensions. While one realises that these staff have a very difficult time, in view of what is at stake it is about time that they called off that action and we are glad that they have. It would not have been acceptable to the country as a whole.
However, this does not bear on the amendment. What we are saying is that there is a need to help people above the age exemption limit. Nothing that the Chief Secretary has said alters that fact. Certainly I am not greatly impressed by the cost argument. We shall be told on Tuesday of next week that it is all right to repay about £10 million of taxation to trade unions which probably need 1278 never have paid it in the first place. There is obviously considerable margin for error in all these matters. However, I do not believe that £30 million this year and £50 million in a full year should be taken so seriously by my hon. Friends as to make them refrain from pressing the amendment.
Equally, we shall be unimpressed by the argument about complexity. We on this side want to simplify the tax system as well as making it more just and more effective in meeting social need. That is why we invented the tax credit system and why, had we still been in power, we should this year have been legislating for it. So it is unsatisfactory to turn down the amendment on the ground of temporary complexity. We must get around to making the whole system less complex, and the way of doing that has been prepared and would have been put into effect if we had still been in power.
The Minister's other argument was also unimpressive. He asked whether, if we wanted to help the elderly, this was the best way. When, in answer to an intervention, he rather sharply told one of my hon. Friends that he had not yet rejected the amendment, I thought that if he were going to reject it he would at least be putting forward a better suggestion. But at the end of his speech he made it clear that he has no better way. In the absence of a better way, we should try to insist on this way.
As I said, there is a need to help people above the age exemption limit. My hon. and learned Friend the Member for Dover and Deal (Mr. Rees) rightly said that the kind of projection that people make for their retirement has been wholly falsified by the scale of inflation which we now have and which, we are told by the NIESR, and almost told by the Government, will be bigger this year than ever before. My hon. Friends the Members for Cirencester and Tewkesbury (Mr. Ridley) and Harwich (Mr. Ridsdale) both said, I am sure accurately, that elderly people have never before had such fear about how they will live out the rest of their lives.
It is true that younger people can take steps to change their position, but elderly people are largely trapped. While the amendment would help those who are not among the poorest pensioners, we should remember that because so many 1279 of these people are trapped they cannot adjust their way of life to meet the effects of inflation. If, when someone retires, he has a particular sort of house, he is at an age when he cannot easily change it. The provision is not there. One is trapped in the position in which one found oneself on retirement and for which one had planned, reasonably enough, before retirement.
These are the people who are being most hit, for example, by the enormous rates increases, particularly in country areas, which this Government have deliberately brought about. They cannot adjust to meet the problems that inflation brings. That is why, as well as anything
§ that we do to improve pensions, we should consider the whole spectrum of people above 65. It is time to introduce the concept contained in the amendment of a special personal allowance for these people.
§ I congratulate my hon. Friend the Member for Braintree (Mr. Newton), on having invented this amendment. I believe that it is right, that it meets the need and that, unless the Chief Secretary can find some better way of meeting it, it should be pressed in the Lobby.
§ Question put, That the amendment be made:—
§ The Committee divided: Ayes 227, Noes, 250.1283
|Division No. 32.]||AYES||[6.29 p.m.|
|Adley, Robert||Eyre, Reginald||Kershaw, Anthony|
|Aitken, Jonathan||Fell, Anthony||King, Evelyn (Dorset, S.)|
|Alison, Michael (Barkston Ash)||Fenner, Mrs. Peggy||King, Tom (Bridgwater)|
|Allason, James (Hemel Hempstead)||Finsberg, Geoffrey||Kitson, Sir Timothy|
|Ancram, M.||Fisher, Sir Nigel||Knox, David|
|Archer, Jeffrey (Louth)||Fletcher-Cooke, Charles||Lamont, Norman|
|Atkins, Rt.Hn. Humphrey (Spellhorne)||Fookes, Miss Janet||Lane, David|
|Awdry, Daniel||Fox, Marcus||Latham, Michael (Melton)|
|Baker, Kenneth||Fraser,Rt.Hn.Hugh (St'fford&Sione)||Lawrence,Ivan|
|Banks, Robert||Freud, Clement||Lawson, Nigel (Blaby)|
|Barber, Rt. Hn. Anthony||Fry, Peter||Le Marchant, Spencer|
|Bell, Ronald||Gardiner, George (Reigate&Banstead)||Lewis, Kenneth (Rtland & Stmford)|
|Bennett, Dr. Reginald (Fareham)||Gardner, Edward (S. Fylde)||Lloyd, Ian (Havant & Waterloo)|
|Benyon, W.||Gilmour, Sir John (Fife, E.)||Loveridge, John|
|Berry, Hon. Anthony||Glyn, Dr. Alan||Luce, Richard|
|Bitten, John||Godber, Rt. Hn. Joseph||McAdden, Sir Stephen|
|Boardman, Tom (Leicester, S.)||Goodhart, Philip||MacArthur, Ian|
|Body, Richard||Goodhew, Victor||McCrindle, R. A.|
|Boscawen, Hon. Robert||Goodlad, A.||Macfarlane, Neil|
|Boyson, Dr. Rhodes (Brent, N.)||Gorst, John||MacGregor, John|
|Braine, Sir Bernard||Gow, Ian (Eastbourne)||Macmillan, Rt. Hn. M. (Farnham)|
|Bray, Ronald||Gower, Sir Raymond (Barry)||Madel, David|
|Brittan, Leon||Grant, Anthony (Harrow, C.)||Marshall, Michael (Arundel)|
|Brocklebank-Fower, Christopher||Gray, Hamish||Mather, Carol|
|Bruce-Gardyne, J.||Grieve, Percy||Maude, Angus|
|Buchanan-Smith, Alick||Griffiths, Eldon (Bury St. Edmunds)||Mawby, Ray|
|Buck, Antony||Grimond, Rt. Hn. J.||Maxwell-Hysiop, R. J.|
|Budgen, Nick||Grist, Ian||Mayhew, Patrick (RoyaiTbridgeWells)|
|Bulmer, Esmond||Hall, Sir John||Meyer, Sir Anthony|
|Burden, F. A.||Hall-Davis, A. G. F.||Miller, Hal (B'grove & R'ditch)|
|Carlisle, Mark||Hamilton, Michael (Salisbury)||Mills, Peter|
|Carr, Rt. Hn. Robert||Hampson, Dr. Keith||Miscampbell, Norman|
|Channon, Paul||Hannam, John||Mitchell, David (Basingstoke)|
|Chataway, Rt. Hn. Chrisiopher||Havers, Sir Michael||Moate, Roger|
|Churchill, W. S.||Hawkins, Paul||Money, Ernie|
|Clark, A. K. M. (Plymouth, Sutton)||Hayhoe, Barney||Monro, Hector|
|Clark, William (Croydon, S.)||Heath, Rt. Hn. Edward||Moore, J. E. M. (Croydon, C.)|
|Clarke, Kenneth (Rushcliffe)||Henderson, Barry (Dunbartonshire, E.)||More, Jasper (Ludlow)|
|Clegg, Walter||Higgins, Terence||Morgan, Geraint|
|Cockcroft, John||Holland, Philip||Morgan-Giles, Rear-Adm.|
|Cooke, Robert (Bristol, W.)||Hooson, Emlyn||Morris, Michael (Northampton, S.)|
|Cope,John||Hordern, Peter||Morrison, Charles (Devizes)|
|Corrie, John||Howe, Rt.Hn. Sir Geoffrey(Surrey,E.)||Morrison, Peter (City of Chester)|
|Costain, A. P.||Howell, Ralph (Norfolk, North)||Mudd, David|
|Crowder, F. P.||Howells, Geraint (Cardigan)||Neave, Airey|
|Davies, Rt. Hn. John (Knutsford)||Hurd, Douglas||Neubert, Michael|
|Dean, Paul (Somerset, N.)||Hutchison, Michael Clark||Newton, Tony (Braintree)|
|Deedes, Rt. Hn. W. F.||Irvine, Bryant Godman (Rye)||Normanton. Tom|
|Dodsworth, Geoffrey||James, David||Nott, John|
|Douglas-Home, Rt. Hn. Sir Alec||Jenkin, Rt.Hn.P. (R'dgeW'std&W'fd)||Onslow, Cranley|
|Drayson, Burnaby||Jessel, Toby||Oppenheim, Mrs. Sally|
|Durant. Tony||Johnston, Russell (Inverness)||Orr, Capt. L. P. S.|
|Dykes, Hugh||Jones, Arthur (Daventry)||Page, John (Harrow, W.)|
|Eden, Rt. Hn. Sir John||Jopling, Michael||Pardoe, John|
|Edwards, Nicholas (Pembroke)||Joseph, Rt. Hn. Sir Keith||Pattie, Geoffrey|
|Elliott. Sir William||Kellett-Bowman, Mrs. Elaine||Percival, Ian|
|Pink, R. Bonner||Shersby, Michael||van Straubenzee, W. R.|
|Price, David (Eastleigh)||Silvester, Fred||Vaughan, Dr. Gerard|
|Prior, Rt. Hn. James||Sims, Roger||Viggers, Peter|
|Quennell, Miss J. M.||Skeet, T. H. H.||Waddington, David|
|Raison, Timothy||Smith, Dudley (W''wick & L'm' ngton)||Wakeham, John|
|Rees, Peter (Dover & Deal)||Spence, John||Walder, David (Clitheroe)|
|Renton.Rt. Hn. SirDavid(H't'gd'ns're)||Spicer, Michael (Worcestershire, S.)||Walker, Rt. Hn. Peter (Worcester)|
|Renton, R. T. (Mid-Sussex)||Sproat, lain||Walker-Smith, Rt. Hn. Sir Derek|
|Rhys Williams, Sir Brandon||Stanbrook, Ivor||Wall, Patrick|
|Ridley, Hn. Nicholas||Stanley, John||Wealherill, Bernard|
|Ridsdale, Julian||Steen, Anthony (L'pool, Wavertree)||Wells, John|
|Rifkind, Malcolm||Stewart, Ian (Hitchin)||Winstanley, Dr. Michael|
|Rippon, Rt. Hn. Geoffrey||Stokes, John||Winterton, Nicholas|
|Roberts, Wyn (Conway)||Stradling Thomas, J.||Wood, Rt. Hn. Richard|
|Rodgers, Sir John (Sevenoaks)||Taylor, Edward M. (Gl'gow, C'cart)||Worsley, Sir Marcus|
|Ross, Stephen (Isle of Wight)||Taylor, Robert (Croydon, N.W.)||Young, Sir George (Ealing, Acton)|
|Rossi, Hugh (Hornsey)||Thatcher, Rt. Hn. Margaret||Younger, Hn. George|
|Rost, Peter (Derbyshire, S.-E.)||Thomas, Rt. Hn. P. (B'nel.H'dn S.)|
|Shaw, Giles (Pudsey)||Thorpe, Rl. Hn. Jeremy||TELLERS FOR THE AYES:|
|Shaw, Michael (Scarborough)||Trotter, Neville||Mr. Adam Butler and|
|Shelton. William (L'mb'th.Streath'm)||Tyler, Paul||Mr. Cecil Parkingson.|
|Abse, Leo||Dunn, James A.||Jones, Alec (Rhondda)|
|Allaun, Frank||Dunnett, Jack||Judd, Frank|
|Archer, Peter (Warley, West)||Dunwoody, Mrs. Gwyneth||Kaufman, Gerald|
|Ashton, Joe||Edelman, Maurice||Kelley, Richard|
|Atkins, Ronald (Preslon, N.)||Edge, Geoff||Kerr, Russell|
|Atkinson, Norman||Edwards, Robert (W'hampton, S.E.)||Kilroy-Silk, Robert|
|Bagier, Gordon, A. T.||Ellis, John (Brigg & scunthorpe)||Kinnock, Neil|
|Barnett, Guy (Greenwich)||Ellis, Tom (Wrexham)||Lambie, David|
|Barnett, Joel (Heywood & Royton)||English, Michael||Lamborn, Harry|
|Bates, Alt||Ennals, David||Latham, Arthur(CityofW'mlnsterP'ton)|
|Benn, Rt. Hn. Anthony Wedgwood||Evans, Fred (Caerphilly)||Lawson,George (Motherwell&Wlshaw)|
|Bldwell, Sydney||Evans, loan (Aberdare)||Leadbitter, Ted|
|Bishop, E. S.||Ewing, Harry (St'ling,f'kirk&G'm'th)||Lestor, Miss Joan (Eton & Slough)|
|Blenklnsop, Arthur||Faulds, Andrew||Lever, Rt. Hn. Harold|
|Boardman, H. (Leigh)||Fernyhough, Rt. Hn. E.||Lewis, Arthur (Newham, N.)|
|Booth, Albert||Fitch, Alan (Wlgan)||Lewis, Ron (Carlisle)|
|Boothroyd, Miss Betty||Flannery, Martin||Lipton, Marcus|
|Bottomley, Rt. Hn. Arthur||Fletcher, Ted (Darlington)||Lomas, Kenneth|
|Boyden, James (Bishop Auckland)||Foot, Rt. Hn. Michael||Loughlin, Charles|
|Bradley, Tom||Ford, Ben||Lyon, Alexander W. (York)|
|Brown, Hugh D. (Glasgow, Provan)||Forrester, John||Lyons, Edward (Bradford, W.)|
|Buchan, Norman||Fowler, Gerry (The Wrekin)||McCartney, Hugh|
|Buchanan,Richard(G'gow,Springb,-n)||Freeson, Reginald||McElhone, Frank|
|Butler, Adam (Bosworth)||Garrett, John (Norwich, S.)||MacFarquhar, Roderick|
|Callaghan, Jim (M'dd'ton & Pr'wich)||Garrett, W. E. (Wallsend)||McGuire, Michael|
|Campbell, Ian||George, Bruce||Mackenzie, Gregor|
|Cant, R. B.||Gilbert, Dr. John||Maclennan, Robert|
|Carmichael, Neil||Glnsburg, David||McMillan, Tom (Glasgow, C.)|
|Carter, Ray||Gourlay, Harry||Madden, M. 0. F.|
|Carter-Jones, Lewis||Graham, Ted||Magee, Bryan|
|Castle, Rt. Hn. Barbara||Grant, George (Morpeth)||Mahon, Simon|
|Clemltson, Ivor||Grant, John (Islington, C.)||Mallalieu, J. P. W.|
|Cocks, Michael||Griffiths, Eddie (Sheffield, Brightside)||Marks, Kenneth|
|Cohen, Stanley||Hamilton, James (Bothwell)||Marquand, David|
|Coleman, Donald||Hamilton, William (Fife, C.)||Marshall, Dr. Edmund (Goole)|
|Colquhoun, Mrs. M. N.||Hamling, William||Mayhew,Chrlstopher(G'wh,W'wch,E)|
|Concannon, J. D.||Hardy, Peter||Meacher, Michael|
|Conlan, Bernard||Harrison, Walter (Wakefield)||Mellish, Rt. Hn. Robert|
|Cook, Robert F. (Edinburgh, C.)||Hart, Rt. Hn. Judith||Mikardo,Ian|
|Cox, Thomas||Hatters ley, Roy||Millan, Bruce|
|Craigen, J. M. (G'gow, Maryhhl)||Hatton, Frank||Miller, Dr. M. S. (E. Kilbride)|
|Crosland, Rt. Hn. Anthony||Heffer, Eric S.||Mitchell, R. C. (S'hampton, lichen)|
|Cryer, G. R.||Hooley, Frank||Morris, Charles R. (Openshaw)|
|Cunningham,G.(lsl'ngt'n,S&F'sb'ry)||Howell, Denis (B'ham, Small Heath)||Morris, Rt. Hn. John (Aberavon)|
|Cunnlnflham,Dr.JohnA.(Whiteh'v'n)||Huckfield, Leslie||Moyle, Roland|
|Davidson, Arthur||Hughes, Rt. Hn. Cledwyn (Anglesey)||Mulley, Rt. Hn. Frederick|
|Davies, Bryan (Enfield, N.)||Hughes, Mark (Durham)||Murray, Ronald King|
|Davies, Denzll (Llanelli)||Hughes, Robert (Aberdeen, North)||Newens, Stanley (Harlow)|
|Davies, Ifor (Gower)||Hughes, Roy (Newport)||Oakes, Gordon|
|Davis, Clinton (Hackney, C.)||Irvine, Rt. Hn. Sir A. (L'p'I,EdgeHiII)||Ogden, Eric|
|Deaklns, Eric||Irving, Rt. Hn. Sydney (Dartford)||O'Malley, Brian|
|Dean, Joseph (Leeds, W.)||Janner, Grevllle||Orbach Maurice|
|de Freitas, Rt. Hn. Sir Geoffrey||Jay, Rt. Hn. Douglas||Ovenden, John|
|Delargy, Hugh||Jeger, Mrs. Lena||Owen, Dr. David|
|Dell, Rt. Hn. Edmund||Jenkins, Rt. Hn. Roy (B'ham,St'fd)||Padley, Waiter|
|Dempsey, James||Johnson,James(K'ston upon Hull,W)||Palmer, Arthur|
|Dolg, Peter||Johnson, Walter (Derby, S.)||Park, George (Coventry, N.E.)|
|Dormand, J. D.||Jones, Barry (Flint, E.)||Parker, John (Dagenham)|
|Douglas-Mann, Bruce||Jones, Dan (Burnley)||Parry, Robert|
|Duffy, A. E. P.||Jones, Gwynoro (Carmarthen)||Peart, Rt. Hn. Fred|
|Perry, Ernest G.||Sillars, James||Walden, Brian (B'm'ham, Ladywood)|
|Phipps. Dr. Colin||Silverman, Julius||Walker, Harold (Doncaster)|
|Price, Christopher (Lewisham, W.)||Skinner, Dennis||Walker, Terry (Kingswood)|
|Price, William (Rugby)||Smith, John (Lanarkshire, N.)||Watkins, David|
|Radice, Giles||Snape, Peter||Weitzman, David|
|Richardson, Miss Jo||Spearing, Nigel||Wellbeloved, James|
|Roberts, Albert (Normanton)||Spriggs, Leslie||White, James|
|Roberts, Gwilym (Cannock)||Stallard, A. W.||Whitehead, Phillip|
|Robertson, John (Paisley)||Stewart, Rt. Hn. M. (H'sth, Fulh'm)||Whitlock, William|
|Roderick, Caerwyn E.||Stoddart, David (Swindon)||Willey, Rt. Hn. Frederick|
|Rodgers, George (Chorley)||Stonehouse, Rt. Hn. John||Williams, Alan (Swansea, W.)|
|Rodgers, William (Teesside, St'ckton)||Strang, Gavin||Williams.Rt.Hn. Shirley (HTd&St'ge)|
|Rooker, J. W.||Strauss, Rt. Hn. G. R.||Williams, W. T. (Warrington)|
|Rose, Paul B.||Summerskill, Hn. Dr. Shirley||Wilson, Gordon (Dundee, E.)|
|Ross, Rt. Hn. William (Kilmarnock)||Swain, Thomas||Wilson, William (Coventry, S.E.)|
|Rowlands, Edward||Taverne, Dick||Wise, Mrs. Audrey|
|Sandelson, Neville||Thomas, D. E. (Merioneth)||Woodall, Alec|
|Sedgemore, Bryan||Thomas, Jeffrey (Abertillery)||Woof, Robert|
|Selby, Harry||Thome, Stan (Preston, S.)||Wrigglesworth, Ian|
|Shaw, Arnold (Redbridge, llford, S.)||Tierney, Sydney||Young, David (Bolton, E.)|
|Sheldon, Robert (Ashton-under-Lyne)||Tinn, James|
|Shore, Rt. Hn. Peter (S'pney&P'plar)||Tuck, Raphael||TELLERS FOR THE NOES:|
|Short, Rt. Hn. E. (N'ctle-u-Tyne)||Urwin, T. W.||Mr. Laurie Pavitt and|
|Silkin, Rt. Hn. John (L'sham,D'tord)||Variey, Rt. Hn. Eric G.||Mr. Joseph Harper.|
|Silkin,Rt.Hn.S.C.(S'hwark,Dulwich)||Wainwright, Edwin (Dearne Valley)|
§ Question accordingly negatived.
§ Mr. John MacGregor () Norfolk, South
1 beg to move Amendment No. 34, in page 8, line 40, at end insert—' (4) In section 10(5) (restriction on child allowance by reference to the child's income) for the reference to £115 there shall be substituted a reference to £215 '.The amendment would increase from £115 to £215 the amount of income which a child may earn before his parent begins to have his child allowance reduced. At the outset, perhaps I ought to declare that I have no personal interest here.
In one sense this might be described as another indexation amendment, and on that theme I must say that I have been fascinated by the frequency with which the concept of indexation has arisen in our debates on the Bill thus far. I suspect that outside the Chamber it is not yet recognised how many of our amendments have dealt with that concept, although I imagine that that situation will shortly change. In that sense I believe that the Committee is leading informed opinion in the country.
Two months ago I put a Question to the Chancellor of the Exchequer, to which he replied on 8th April, asking when the present limit of £115 was fixed and what the new figure should be, the effects of inflation being taken into account. The limit was last fixed in 1963-64, and by February 1974 the figure should have risen to £216. I have rounded it down to £215. Account has thus been taken of inflation.
I advance three main reasons in support of the amendment. First, there is 1284 the question of equity. Unlike several of the other matters covered by the indexation amendments which we have discussed, this limit has not been raised for a long time. Few other allowances have been allowed to remain static in these inflationary times as this one has. I stress also that we are talking here of comparatively modest amounts of children's capital. In 1963-64, assuming a return of 5 per cent., one was speaking of capital of about £2,000. Today we are considering about £1,000 or less, having regard to the increase in interest returns, and that sum of about £1,000 means a great deal less in real capital terms than did the £2,000 in 1963-64.
It is a not dishonourable wish on the part of grandparents or others to give children a certain amount of capital for their future, and when they make these gifts they do so out of much more heavily taxed capital, especially with the prospective wealth and gift taxes. As I say, it is not dishonourable to wish to pass on a modest amount to children, but in so doing the donor penalises the parents of the children through the effect on the child allowance.
1 agree very much with what was said by my hon. Friend the Member for Brain-tree (Mr. Newton) on Amendment No. 49 when he pointed out that a proposal of this kind would equally benefit people with very large amounts of capital and, therefore, much higher levels of income from children's capital, but the benefit is proportionately much higher for those who are only just above the income level 1285 of £115. In other words, the proportionate benefit really bites in respect of those for whom the amendment is intended. That, therefore, is my first argument, on grounds of equity in time of inflation.
Second, I address myself to the question of students' earnings. In effect, every extra £1 above the £115 which a student earns at present during his vacations is charged at his parent's highest rate of tax. I recall earning modest sums myself as a student during the vacations to help me through university, running seaside summer shows for visitors. I was always extremely careful to keep my total net earnings, after taking expenses into account, below the figure at which I knew my family would start to be taxed. Today, however, it is far easier to earn a great deal more than £115 in the summer vacation.
At that time the child's income allowance which we are here discussing was much more in step with the child tax allowance than it is now. Yet today, as a result of this Finance Bill, the child tax allowance has been increased to £305 for children over 16 years of age. I submit, therefore, that the £115 is well below what it should be.
This is of special importance in relation to students' earnings. We want to encourage more children to go on to higher education, but we cannot yet, for reasons of cost, apparently, abolish the parental means test, although I should very much welcome it if we could. Thus we are hitting the student who has a family with an income above the parental means test level and who is willing to support himself by work during the vacations. In effect, we say that in many cases the student, or the family as a whole, will pay a very high marginal rate of tax on his earnings which result from his desire to make a contribution towards paying his way through university. The amendment would at least help in that sort of situation. A number of constituents have drawn my attention to their problems in this respect.
I have written to the Chief Secretary about a particular case of that kind, namely, students' earnings on thin sandwich courses. It appears from the evidence available to me that those who go through university or technical college full time with grant from their employer 1286 or from the local authority—1 am especially concerned about those with grant from the employer—do not have their families' child allowance affected in any way. On the other hand, those on thin sandwich courses, in which they work for six months with an employer, obtaining earnings plus expenses, and in the remaining six months have a grant from the local authority, find that the first six months' earnings are regarded as earned income, and this bites on the child allowance. I regard this as an anomaly which ought to be remedied. It could be tackled in various ways, perhaps, but the amendment would at least help.
Third, again unlike some of the other matters which we have discussed with reference to indexation, the cost here would, I am sure, be comparatively slight. I understand from the reply to a Question which I put to the Chancellor of the Exchequer that it is not possible accurately to assess the cost, and I recognise the reasons and the difficulty there. But the cost cannot be great.
I move the amendment, therefore, on those three grounds: on grounds of equity, on the effect on students' earnings, and on the comparatively small cost. I urge the Chief Secretary to give it sympathetic consideration.
§ Mr. Norman Lamont (Kingston-upon-Thames)
I support my hon. Friend the Member for Norfolk, South (Mr. MacGregor) in his amendment to raise from £115 the level to which a child's income is allowed to go before the child allowance is reduced pound for pound. As my hon. Friend said, there is no doubt that this allowance has not kept pace with inflation. In 1952-53 the figure was £85. In 1957-58 it was raised to £100. In 1963-64 it was raised to £115. It has not been raised since, and in that time the real value has been almost halved. It seems to me, therefore, that, if we are to have this allowance at all, there is a strong case for increasing it.
In supporting the amendment I wish to put a question to the Chief Secretary. How will this child's earnings limit and its effect on the child allowance be affected by the proposals which the Government intend to bring in for aggregation of children's and parents' incomes? As I understand it, the allowance here relates purely to children's income—in their own 1287 right, excluding scholarships and bursaries, for example. When we had aggregation before 1971 the child's income was treated as the income of the parent and did not affect the child allowance.
I should be grateful if the Chief Secretary would tell us whether in the effect that the £115 or the improved allowance will have on the child allowances the Government are intending to revert to the pre-1971 situation. I hope his answer will be "Yes", but even if it is there is still a strong argument for increasing the allowance in terms of inflation alone.
§ Mr. Joel Barnett
I am obliged to both hon. Members for the way they have spoken to the amendment, but particularly to the hon. Member for Norfolk, South (Mr. MacGregor) who moved it. Obviously we have a great deal of sympathy for the proposal because, as he rightly assumed, the cost is small. It would be only about £3 million in a full year—I say "only", but if I could find many amounts of £3 million I would have many people asking for them—and about £2½million in 1974–75.
I do not want to resist the amendment on grounds of cost. I should like to see the allowance increased because it has been well overtaken by inflation over the years, but there is a problem. Perhaps I may here deal with the point raised by the hon. Member for Kingston-upon-Thames (Mr. Lamont) about aggregation, because that is the central point of my reply to the amendment. Whether we shall go back precisely to the pre-1971 situation has not been decided, but it will be similar to that situation on aggregation.
When that happens the earnings of students or any other youngsters will not be left open to the sort of abuse which is unfortunately available through the use of covenants. Successive Treasury Ministers have argued this case, but invariably it is not altogether understood. If the amount that a child may earn or have as income is increased to the level mentioned in the amendment or to any other reasonable sum, it is open to grandparents and others, through the use of a covenant, to abuse the system. That argument has been used in the past and it is a most persuasive one. Although the cost of agreeing to the amendment would 1288 be small, the abuse could grow substantially and I am sure that that is not what the Committee wants.
With the sort of aggregation which we are proposing to introduce, the investment income for a youngster would fall to be aggregated. That would be the time to allow an increase of the amount suggested in the amendment. Whether it would be that actual amount is something we should have to consider, but to do what the hon. Members wants in advance of aggregation would be a little incongruous. We should be giving the benefit to children with investment income only to move in the other direction with aggregation. I know that that does not altogether please Conservative Members, who do not like aggregation, and I understand that there is a clear difference of political view on that. There is some abuse here and it could grow considerably if the amount of income that a child could have were to be increased. That is the only reason why I should want to resist the amendment.
§ Mr. MacGregor
Irrespective of the merits of the gift tax, would not that bite on the point the Chief Secretary has in mind?
§ Mr. Barnett
I was referring not to the gift tax but to aggregation. Nevertheless, I take the point that if the grandparent was caught by the gift tax that might dissuade him from making any transfers. Therefore, that again might be the occasion for increasing the allowance.
I am sympathetic to increasing the allowance, and if the Committee accepts my point I shall certainly be willing to consider that increase when we introduce aggregation. I cannot accept it now.
§ Mr. Higgins
I have listened with great interest to the debate. It is true, as the Chief Secretary suggested, that there are profound points of principle at stake on the question of aggregation of children's income. We debated them at great length in Standing Committee under the last Labour Government before 1970 and subsequently. There is always the danger in matters of this kind that we engage in what might be called switchback politics. One party says that it will do one thing and the other party says that it will do the opposite when it comes to power, and the matter 1289 switches back and forth. On the general principle, we must relate the position at any given moment to any factors which may have altered since the matter was last debated. If the position is that the Labour Party says it will reverse everything that the Conservatives have done without the Conservatives adopting a similar attitude, the result will be a steady move to the far left. That is not a situation which the Conservative intend to accept.
We have taken considerable exception to the line adopted by the Government, particularly on the gifts tax which has rightly been described as prospective retrospective legislation, and also to the announcement in the Budget by the Chancellor of proposals which will not take place until the autumn. Consequently we have no opportunity in the intervening period to debate such matters and remain in order. I cannot therefore try your patience, Sir Myer, by discussing the
§ overall question of aggregation except to say that the points we made previously remain valid.
§ I found the Chief Secretary's answer most unconvincing. It is based on the premise that what he proposes for the autumn will come to pass. I do not believe that that will be the case. He might have produced something more substantial. It is quite some time since the income limit was increased. There are frequently good reasons why it is not increased, but if those reasons exist the Chief Secretary has totally failed to produce them. It seems to me that my hon. Friends are on to a good point and I advise them, if they feel so moved, to press the matter to a Division, in which I shall support them.
§ Question put, That the Amendment be made: —
§ The Committee divided: Ayes 221, Noes 245.1293
|Division No. 33.]||AYES||[6.59 p.m.|
|Aitken, Jonathan||Deedes, Rt. Hn. W. F.||Holland, Philip|
|Alison, Michael (Barkston Ash)||Dodsworth, Geoffrey||Hooson, Emlyn|
|Allason, James (Hemel Hempstead)||Douglas-Home, Rt. Hn. Sir Alec||Hordern, Peter|
|Ancram, M.||Drayson, Burnaby||Howe, Rt.Hn. Sir Geoffrey(Surrey,E.)|
|Archer, Jeffrey (Louth)||Durant, Tony||Howell, Ralph (Norfolk, North)|
|Atkins, Rt.Hn. Humphrey (Spelthorne)||Dykes, Hugh||Howells, Geraint (Cardigan)|
|Awdry, Daniel||Edwards, Nicholas (Pembroke)||Hurd, Douglas|
|Baker, Kenneth||Elliott, Sir William||Hutchison, Michael Clark|
|Barber, Rt. Hn. Anthony||Eyre, Reginald||Irvine, Bryant Godman (Rye)|
|Bell, Ronald||Fell, Anthony||James, David|
|Bennett, Dr. Reginald (Fareham)||Fenner, Mrs. Peggy||Jessel, Toby|
|Benyon, W.||Finsberg, Geoffrey||Johnston, Russell (Inverness)|
|Berry, Hon. Anthony||Fisher, Sir Nigel||Jones, Arthur (Daventry)|
|Bitten, John||Fletcher-Cooke, Charies||Jopling, Michael|
|Boardman, Tom (Leicester, S.)||Fookes, Miss Janet||Joseph, Rt. Hn. Sir Keith|
|Body, Richard||Fowler, Norman (Sutton Coldfield)||Kellett-Bowman, Mrs. Elaine|
|Boscawen, Hon. Robert||Fraser,Rt.Hn.Hugh (St'fford&Stone)||King, Evelyn (Dorset, S.)|
|Boyson, Dr. Rhodes (Brent, N.)||Freud, Clement||King, Tom (Bridgwater)|
|Braine, Sir Bernard||Fry, Peter||Kitson, Sir Timothy|
|Bray, Ronald||Gardiner, George (Relgate&Banstead)||Knox, David|
|Brittan, Leon||Gardner, Edward (S. Fylde)||Lamont, Norman|
|Brocklebank-Fowler, Christo-cher||Gilmour, Sir John (Fife, E.)||Lane, David|
|Bruce-Gardyne, J.||Glyn, Dr. Alan||Langford-Holt, Sir John|
|Buchanan-Smith, Alir.k||Godber, Rt. Hn. Joseph||Latham, Michael (Melton)|
|Buck, Antony||Goodhart, Philip||Lawrence, Ivan|
|Bidgen, Nick||Goodhew, Victor||Lawson, Nigel (Blaby)|
|Bulmer, Esmond||Goodlad, A.||Le Marchant, Spencer|
|Burden, F. A.||Gorst, John||Lewis, Kenneth (Rtland & Stmford)|
|Buller, Adam (Bosworlh)||Gow, Ian (Eastbourne)||Lloyd, Ian (Havant & Waterloo)|
|Carlisle, Mark||Gower, Sir Raymond (Barry)||Loveridge, John|
|Carr, Rt. Hn. Robert||Grant, Anthony (Harrow, C.)||Luce, Richard|
|Channon, Paul||Gray, Hamlsh||McAdden, Sir Stephen|
|Chataway, Rt. Hn. Christopher||Grieve, Percy||MacArthur, Ian|
|Churchill, W. S.||Griffiths, Eldon (Bury St. Edmunds)||Macfarlane, Neil|
|Clark, A. K. M. (Plymouth, Sutton)||Grimond, Rt. Hn. J.||MacGregor, John|
|Clark, William (Croydon, S.)||Grist, Ian||Macmillan, Rt. Hn. M. (Farnham)|
|Clarke, Kenneth (Rushcliffe)||Hall, Sir John||Madel, David|
|Clegg, Walter||Hall-Davis, A. G. F.||Marten, Nell|
|Cockcrott, John||Hamilton, Michael (Salisbury)||Mather, Carol|
|Cooke, Robert (Bristol, W.)||Hampson, Dr. Keith||Maude, Angus|
|Cope, John||Hannam,John||Mawby, Ray|
|Cormack, Patrick||Havers, Sir Michael||Maxwell-Hyslop, R. J.|
|Corrie, John||Hawkins, Paul||Mayhew,Patrick(RoyalT'brldgeWelIs)|
|Costain, A. P.||Hayhoe, Barney||Meyer, Sir Anthony|
|Crowder, F. P.||Heath, Rt. Hn. Edward||Miller, Hal (B'grove & R'ditch)|
|Davies, Rt. Hn. John (Knutsford)||Henderson,Barry (Dunbartonshire, E.)||Mills, Peter|
|Dean. Paul (Somerset, N.)||Higgins. Terence||Miscampbell, Norman|
|Mitchell, David (Basingstoke)||Rees, Peter (Dover & Deal)||Stradling Thomas, J.|
|Moate, Roger||Renton,Rt. Hn. SirDavid(H't'gd'ns're)||Tapsell, Peter|
|Money, Ernie||Renton, R. T. (Mid-Sussex)||Taylor, Edward M. (Gl'gow, C'cart)|
|Monro, Hector||Rhys Williams, Sir Brandon||Taylor, Robert (Croydon, N.W.)|
|Moore, J. E. M. (Croydon, C.)||Ridley, An. Nicholas||Thatcher, Rt. Hn. Margaret|
|More, Jasper (Ludlow)||Rifkind, Malcolm||Thomas, Rt. Hn. P. (B'net.H'dn S.)|
|Morgan, Geraint||Rippon, Rt. An. Geoffrey||Trotter, Neville|
|Morgan-Giles, Rear-Adm.||Roberts, Wyn (Conway)||Tugendhat, Christopher|
|Morris, Michael (Northampton, S.)||Ross, Stephen (Isle of Wight)||Tyler, Paul|
|Morrison, Charles (Devizes)||Rossi, Hugh (Hornsey)||van Straubenzee, W. R.|
|Morrison, Peter (City of Chester)||Rost, Peter (Derbyshire, S.-E.)||Vaughan, Dr. Gerard|
|Mudd, David||Royle, Sir Anthony||Viggers, Peter|
|Neave, Airey||Shaw, Giles (Pudsey)||Waddington, David|
|Neubert, Michael||Shaw, Michael (Scarborough)||Wakeham, John|
|Newton, Tony (Braintree)||Shelton, William (L'mb'th.Streath'm)||Walder, David (Clitheroe)|
|Normanton, Tom||Shersby, Michael||Walker-Smith, Rt. Hn. Sir Derek|
|Onslow, Cranley||Silvester, Fred||Walters, Dennis|
|Oppenheim, Mrs. Sally||Sims, Roger||Weatherill, Bernard|
|Orr, Capt. L. P. S.||Sinclair, Sir George||Wells, John|
|Page, John (Harrow, W.)||Smith, Dudley (W'wick&L'm'ngton)||Winstanley, Dr. Michael|
|Pardoe, John||Spence John||Wood, Rt. Hn. Richard|
|Pattie, Geoffrey||Spicer, Michael (Worcestershire, S.)||Worsley, Sir Marcus|
|Percival, Ian||Sproat. lain||Young, Sir George (Ealing, Acton)|
|Pink, R. Bonner||Stanbrook, Ivor||Younger, Hn. George|
|Price, David (Eastleigh)||Stanley, John|
|Prior, Rt. Hn. James||Steen, Anthony (L'pool, Wavertree)||TELLERS FOR THE AYES:|
|Quennell, Miss J. M.||Stewart, Ian (Hitchin)||Mr. Marcus Fox and|
|Raison, Timothy||Stokes, John||Mr. Cecil Parkinson.|
|Abse, Leo||Deli, Rt. Hn. Edmund||Hughes, Robert (Aberdeen, North)|
|Allaun, Frank||Dempsey, James||Hughes, Roy (Newport)|
|Archer, Peter (Warley, West)||Doig, Peter||Irvine, Rt. Hn. Sir A. (L'p'I.EdgeHili)|
|Atkins, Ronald (Pre3ton, N.)||Douglas-Mann, Bruce||Irving, Rt. Hn. Sydney (Dartford)|
|Atkinson, Norman||Duffy, A. E. P.||Janner, Greville|
|Bagier, Gordon, A. T.||Dunn, James A.||Jay, Rt. Hn. Douglas|
|Barnett, Guy (Greenwich)||Dunnett, Jack||Jeger, Mrs. Lena|
|Barnett, Joel (Heywood & Royton)||Dunwoody, Mrs. Gwyneth||Jenkins, Rt. Hn. Roy (B'ham,St'fd)|
|Bates, Alt||Edelman, Maurice||John, Brynmor|
|Benn, Rt. Hn. Anthony Wedgwood||Edge, Geoff||Johnson, Walter (Derby, S.)|
|Bennett, Andrew F. (Stockport, N.)||Edwards, Robert (W'hampton, S.E.)||Jones, Alec (Rhondda)|
|Bidwell, Sydney||Ellis, John (Brigg & Scunthorpe)||Jones, Barry (Flint, E.)|
|Bishop, E. S.||Ellis, Tom (Wrexham)||Jones, Dan (Burnley)|
|Blenkinsop, Arthur||English, Michael||Jones, Gwynoro (Carmarthen)|
|Boardman, H. (Leigh)||Ennals, David||Judd, Frank|
|Booth, Albert||Evans, Fred (Caerphilly)||Kaufman, Gerald|
|Boothroyd, Miss Betty||Evans, loan (Aberdare)||Kelley, Richard|
|Bottomley, Rt. Hn. Arthur||Ewing, Harry (St'ling,F'kirk&G'm'th)||Kerr, Russell|
|Bowden,Andrew(Brighton,Kemptown)||Fernyhough, Rt. Hn. E.||Kilroy-Silk, Robert|
|Bradley, Tom||Fitch, Alan (Wigan)||Kinnock, Neil|
|Brown, Hugn D. (Glasgow, Provan)||Flannery, Martin||Lambie, David|
|Buchan, Norman||Fletcher, Ted (Darlington)||Lamborn, Harry|
|Buchanan,R'.chard(G'gowSpringbrn)||Foot, Rt. Hn. Michael||Latham, Arthur(CityofW'minsterP'ton)|
|Butler, Mrs. joyce(H'gey.WoodGreen)||Ford, Ben||Lawson,George(Motherwell&Wishaw)|
|Callaghan, Jim (M'dd'ton & Pr'wich)||Forrester, John||Lestor, Miss Joan (Eton & Slough)|
|Campbell, Ian||Fowler, Gerry (The Wrekin)||Lever, Rt. Hn. Harold|
|Cant, R. B.||Freeson, Reginald||Lewis, Arthur (Newham, N.)|
|Carmichael, Neil||Garrett, John (Norwich, S.)||Lewis, Ron (Carlisle)|
|Carter, Ray||Garrett, W. E. (Wallsend)||Lipton, Marcus|
|Carter-Jones, Lewis||George, Bruce||Lomas, Kenneth|
|Castle, Rt. Hn. Barbara||Gilbert, Dr. John||Loughlin, Charles|
|Clemitson, Ivor||Ginsburg, David||Lyon, Alexander W. (York)|
|Cocks, Michael||Gourlay, Harry||Lyons, Edward (Bradford, W.)|
|Cohen, Stanley||Graham, Ted||McCartney, Hugh|
|Coleman, Donald||Grant, George (Morpeth)||McElhone, Frank|
|Colquhoun, Mrs. M. N.||Grant, John (Islington, C.)||MacFarquhar, Roderick|
|Concannon, J. D.||Griffiths, Eddie (Sheffield, Brightside)||McGuire, Michael|
|Conlan, Bernard||Hamilton, James (Bothwell)||Mackenzie, Gregor|
|Cook, Robert F. (Edinburgh, C.)||Hamilton, William (File, C.)||Maclennan, Robert|
|Craigen, J. M. (G'gow, Maryhill)||Hamlfng, William||McMillan, Tom (Glasgow, C.)|
|Crosland, Rt. Hn. Anthony||Hardy, Peter||Madden, M. 0. F.|
|Cryer, G. R.||Harper, Joseph||Magee, Bryan|
|Cunningham,G.(Isl'ngt'n.S&F'sb'ry)||Harrison, Walter (Wakefield)||Mahon, Simon|
|Cunningham,Dr. JohnA. (Whiteh' V'n)||Hart, Rt. Hn. Judith||Mallalieu, J. P. W.|
|Davidson, Arthur||Hattersley, Roy||Marks, Kenneth|
|Davies, Bryan (Enfield, N.)||Hatton, Frank||Marquand, David|
|Davies, Denzll (Llanelli)||Heller. Eric S.||Marshall, Dr. Edmund (Goole)|
|Davies, Ifor (Gower)||Hooley, Frank||Mayhew, Christopher (G'wh,W'wch,E)|
|Davis, Clinton (Hackney, C.)||Horam, John||Meacher, Michael|
|Deakins, Eric||Howell, Denis (B'ham, Small Health)||Mellish, Rt. Hn. Robert|
|Dean, Joseph (Leeds, W.)||Huckfield, Leslie||Mikardo,Ian|
|de Freitas, Rt. Hn. Sir Geoffrey||Hughes, Rt. Hn. Cledwyn (Anglesey)||Millan, Bruce|
|Delargy, Hugh||Hughes, Mark (Durham)||Miller, Dr. M. S. (E. Kilbride)|
|Mitchell, R. C. (S'hamplon, lichen)||Rodgers, George [Chorley]||Thomas, D. E. (Merioneth)|
|Morris, Charles R. (Openshaw)||Rodgers, William (Teesside, St'ckton)||Thomas, Jeffrey (Abertillery)|
|Morris, Rt. Hn. John (Aberavon)||Rooker, J. W.||Tierney, Sydney|
|Moyle, Roland||Rose. Paul B.||Tinn, James|
|Mulley, Rt. Hn. Frederick||Ross, Rt. Hn. William (Kilmarnock)||Torney, Tom|
|Murray, Ronald King||Rowlands, Edward||Tuck, Raphael|
|Newens, Stanley (Harlow)||Sandelson, Neville||Wainwright, Edwin (Dearne Valley)|
|Oakes, Gordon||Sedgemore, Bryan||Walden, Brian (B'm'ham, Ladywood)|
|Ogden, Eric||Selby, Harry||Walker, Harold (Doncaster)|
|O'Malley, Brian||Shaw, Arnold (Redbridge, lllord, S.)||Walker, Terry (Klngswood)|
|Orbach, Maurice||Sheldon, Robert (Ashton-under-Lyne)||Watkins, David|
|Ovenden, John||Shore, Rt. Hn. Peter (S'pney&P'plar)||Weitzman, David|
|Owen, Dr. David||Short, Rt. Hn. E. (N'ctle-u-Tyne)||Wellbeloved, James|
|Padley, Walter||Silkin, Rt. Hn. John (L'sham.D'ford)||White, James|
|Palmer, Arthur||Silkin,Rt.Hn.S.C.(S'hwark,Dulwich)||Whitehead, Phillip|
|Perk, George (Coventry, N.E.)||Sillars, James||Whitlock, William|
|Parker, John (Dagenham)||Silverman, Julius||Willey, Rt. Hn. Frederick|
|Parry, Robert||Skinner, Dennis||Williams, Alan Lee (Hvrng, Hchurch)|
|Pavitt, Laurie||Smith, John (Lanarkshire, N.)||Williams,Rt.Hn. Shirley(H'f'd&St'ge)|
|Peart, Rt. Hn. Fred||Snape, Peter||Williams, W. T. (Warrington)|
|Perry, Ernest G.||Spearing, Nigel||Wilson, William (Coventry, S.E.)|
|Phlpps, Dr. Colin||Soriggs, Leslie||Wise, Mrs. Audrey|
|Price, Christopher (Lewisham, W.)||Stallard, A. W.||Woodall, Alec|
|Price, William (Rugby)||Stewart, Rt. Hn. M. (H'sth, Fulh'm)||Woof, Robert|
|Radice, Giles||Stoddart, David (Swindon)||Wrigglesworth, Ian|
|Richardson, Miss Jo||Strang, Gavin||Young, David (Bolton, E.)|
|Roberts, Albert (Normanton)||Strauss, Rt. Hn. G. R.|
|Roberts, Gwilym (Cannock)||Summerskill, Hn. Dr. Shirley||TELLERS FOR THE NOES:|
|Robertson, John (Paisley)||Swain, Thomas||Mr, J. D. Dormand and|
|Roderick, Caerwyn E.||Taverne, Dick||Mr. Thomas Cox.|
§ Question accordingly negatived.
§ Mr. Norman Lamont: I beg to move Amendment No. 70, in page 9, line 3, leave out from '£565' to end of line 6.
§ In replying to Amendment No. 49, the Chief Secretary said that one reason for his being unable to accept it was that it did not help adequately the elderly people in the marginal age exemption bracket. I very much hope that on this occasion the Chief Secretary will be able to accept my amendment, because it is designed to help those within that bracket.
§ The effect of the amendment would be to extend the band of income up to which elderly people would be better off to opt for the marginal aid exemption relief. Under the present arrangements a person pays no tax up to the age exemption limit. Beyond that limit a person pays tax for each extra pound, under the proposals in the Bill, at 55 per cent. instead of 50 per cent. last year. Many people in this category are not well off, and 55 per cent. seems to be an extraordinarily high marginal rate of taxation. It is the same marginal rate that someone earning £8,000 a year would have to pay.
§ The purpose of the amendment is to raise the point at which it becomes to a person's advantage to opt for the marginal age exemption. As a result of the changes made in the Budget the limit at which that point occurs for a single person has increased this year from £856 1294 to £1,025. That is an increase of 20 per cent. For a married person the limit has increased from £1,337 to £1,528, an increase of 14 per cent. If the rate of taxation levied on the marginal aid exemption had remained at 50 per cent. the cut-off point, at which it would have become to a person's advantage to opt for the relief, would have risen to £1,095 for a single person—an increase of 28 per cent.—and to £1,644 for a married couple, an increase of 23 per cent.
§ There is thus a strong case for giving elderly people who have incomes beyond the age exemption limit some additional relief. The marginal rate of taxation of 55 per cent. seems an extraordinarily high rate to levy on someone with an income which may be only half the level of average earnings. Many elderly people in my constituency are in that position. Many have incomes from savings, and some have part-time jobs. They are the people who have been very hard hit by increased rates and increased electricity charges as well as all the other increased items. Often they have to pay their bills by instalments. They are hit more and more by rising prices. They find their living standards being crushed. They cannot afford to buy clothes, and it is becoming more and more difficult for them to buy food.
§ When my right hon. Friend the Member for Leeds, North-East (Sir K. Joseph) referred to the twilight of the middle 1295 classes, I felt that that category included many people in the marginal age exemption bracket. They are the most defenceless of all. I feel strongly that there is a case for not raising the tax rate from 50 per cent. to 55 per cent.
§ I appreciate that in most cases when taxation is increased it is necessary to spread the increase throughout the whole system, but it seems extraordinary that such a high rate of tax should be levied on people who are suffering more than any other group. They have fewer resources to cope with the increased burden and their resources are being eaten up as time goes by. I hope that the Government will feel able to accept the amendment.
§ 7.15 p.m.
§ Mr. Higgins
My hon. Friend the Member for Kingston-upon-Thames (Mr. Lamont) has raised an important point which was foreshadowed in the Chancellor's Budget Statement on 26th March. The Chancellor said that the age exemption income limit for single persons was to be increased by £85 from £700 to £785 and for married couples by £130 from £1,000 to £1,130. The right hon. Gentleman then said:The marginal fraction, by which the relief is withdrawn when a pensioner's income slightly exceeds these limits, will have to be increased slightly in order to avoid an unreasonably wide marginal band. It will go up from 50 per cent. to 55 per cent."— [OFFICIAL REPORT, 26th March 1974; Vol. 871, c. 322.]On an earlier amendment, the Chief Secretary talked at considerable length about the complexity of the existing age exemption limits and especially about the marginal provisions. It seems that his remarks on the age exemption limit were ill directed. The hon. Gentleman sought to attack the amendment whereas the complexity of the age exemption limit would have continued whether or not the amendment had been accepted.
As has been pointed out in the course of earlier debates, it is our view that the tax credit scheme provides a better solution to this sort of problem. The people with whom we are dealing are involved in considerable complexities if they fall within the marginal band.
I had some sympathy with the Chief Secretary's reflex reaction. Probably over 1296 the past three or four years I have signed more letters than he has in the past few months relating to this issue. No doubt some of his colleagues and some of my hon. Friends have signed precisely the same sort of letter explaining how marginal relief on the age exemption limit operated. It is a complex matter which taxpayers, once they cotton on to what is going on, do not understand. To make an explanation takes about three pages of Treasury letter.
That being so, I have some sympathy with the Chancellor's argument that there is a danger of creating an unduly wide band. None the less, as has been pointed out earlier, I do not think that taxpayers necessarily prefer simplicity to money. They may well feel, even though it is a complex matter and even though they find themselves in a complexity which they were not in before, that if they gain financially they will not mind all that much.
It is right that my hon. Friend should probe to find why the Chancellor feels that he should raise the limit. To do so clearly reduces the width of the band of people falling within marginal relief, but at the same time it raises the marginal rate of tax. We now find ourselves in the curious position that there are people who pay high rates of tax at the top end of the scale, that there are people in the poverty surtax bracket and that there are now people in the lower middle income group—I avoid carefully the word "class"—who pay tax at the rate of 55 per cent.
Perhaps the Chief Secretary will tell us at what income level a person would be required to pay tax at the rate of 55 per cent. I presume that that would apply to someone in the £8,000 to £9,000 range. Is that the case? If so, can the hon. Gentleman justify people paying at the rate of 55 per cent. when their incomes are just above the age exemption limit and they are worse hit by inflation than those in the £8,000 to £9,000 range?
I hope that the Chief Secretary can give better justification than was contained in the rather brief remarks of the Chancellor of the Exchequer in his Budget Statement as to why this provision should be included in the Bill. Surely the situation might well have been left where it was.
§ Mr. Joel Barnett
We have had two very interesting speeches from which we have at least learned something. We have had a clarification of what the right hon. Member for Leeds, North-East (Sir K. Joseph) meant by his reference to the middle income groups, although I thought that he referred to the middle classes. The hon. Member for Kingston-upon-Thames (Mr. Lamont) thought that he was referring to the middle income groups, but I gather that the hon. Member for Worthing (Mr. Higgins) thought that he was referring to the lower middle income groups. It is understandable because of the extra relief we have now given in the Budget.
Under the Bill the income limit for the single person is increased to £810 and for a married couple to £1,170—that is to say, from £700 and £1,000 respectively. Thereby, either the middle income groups or the lower middle income groups are starting at a fairly low level today. But that is not the main burden of my argument. The cost of the amendment would not be very great. It would be £8 million in a full year and £5½million in 1974-75. Although, obviously, a sum of £8 million is important, I would not wish to rest my case on cost.
§ Mr. Higgins
I must express some slight surprise at that figure. Am I to understand that as a result of this provision in the Bill, which affects only people at the age exemption limit within the marginal band—no doubt the hon. Gentleman will say which groups he is concerned with—an extra £8 million will be involved?
§ Mr. Barnett
I am telling the hon. Gentleman that the cost of the amendment in reducing the figure of tax on the tapering figures above the age exemption relief would be £8 million in a full year.
§ Mr. Barnett
I will put it the other way round. I agree that it is yielding £8 million in a full year to have it at 55 per cent. instead of 50 per cent. I will assume for the benefit of argument that the complex provisions of the tapering relief on age exemption marginal relief are fully understood. I am sure 1298 that hon. Members who have spent so many long hours in this Committee will be fully aware of the complexities.
What the hon. Member for Worthing said in referring to my right hon. Friend's statement is right. The point is that if we had left it at 50 per cent,. a very wide band of taxpayers over the age of 65 would have been eligible for marginal relief in the tapering income groups. Perhaps I can explain that. If the marginal fraction of 50 per cent. had been retained for 1974–75, marginal age exemption relief could, in the extreme case, have given some small benefit to an elderly single taxpayer with an income of up to £1,169 and to an elderly married couple with a joint income of as much as £2,477. These are £359 and £1,307 respectively above the relevant income limits. That reflects the width of the band.
I take the point made by the hon. Member for Kingston-upon-Thames, on which I think there may be some misunderstanding. I am talking now about marginal relief and where age exemption runs out. The figures quoted by the hon. Gentleman on this were those that would have applied had the income limits originally proposed by the Chancellor prevailed. But a revised resolution was later put down raising the income limits still further. I referred to that in my own speech during the Budget debate.
If we accepted the amendment, the limits and the band would be very wide. This was the point which the hon. Member for Worthing understood. The net result would be that a large number of people would gain by it if they understood what to claim. I have no doubt that some would not know what to claim because of this complexity.
I have mentioned the ingenuity of the idea of having a special allowance for elderly people. The trouble is that that would go all the way up the income scale, whereas age exemption restricts it to a particular level of income. That is the basic reason why we do not feel able to accept the amendment. By having a 55 per cent. rate, the benefit of the marginal relief will, in the extreme case, run out at £1,087 for the single person and £1,733 for the married couple. That is to say, the width of the marginal zones will become £277 and £563 respectively. I 1299 do not say that this is necessarily a happy situation. But I think that it is better than having a very wide band of income in the tapering relief.
Both hon. Members complained about a high marginal rate of 55 per cent. Indeed, there has been Press comment about it. But it is somewhat misleading —and I am not blaming anyone—to talk about a high marginal rate of tax, because it is always open to someone to opt for the ordinary single person's or married allowance. A point which old people often find difficult to understand is that there is a marginal rate when they have had the relief of the age exemption. But it is not a high marginal rate in the true sense of the word.
I could go on at greater length, but I think what I have said explains roughly the reasons why I do not feel able to accept the amendment. I hope that my arguments will be acceptable to the Committee.
§ Mr. Newton
Having been involved in an earlier amendment, I find that the remarks which the Chief Secretary has made in reply to the debates today, during which we have tried to get some extra relief for elderly taxpayers, have become more and more profoundly unsatisfactory. For example, we were told that the objection to my amendment earlier was that the tax system would be made rather too complicated if we introduced the additional personal allowance for elderly people. Now we are told that it is not really as complicated as old people may think because they do not really look at it in the right way, that it is not really a marginal tax rate, and so on. But the end result of the hon. Gentleman's argument is that he does not want to do anything to help old people this year in this or any other way simply because he does not want to do it. This is not good enough.
We have put forward a series of amendments, each of which would be economical in itself. Even the £30 million which would have been involved in an earlier amendment is a small sum. It is well within the margin of error of most of the sums we have in the Red Book. I am willing to bet that, of the estimates in the Red Book of the yield of taxation for the coming year, hardly one will not be at least £30 million out 1300 because of mis-estimation or because the rate of inflation has changed in the coming year. It is not enough for these proposals to be shot down by the argument that they will cost £30 million.
As soon as we find a proposal that is cheap enough for the hon. Gentleman to accept, he finds some standard, hoary, old Treasury reason for not accepting it. We have met that in debate after debate. We all appreciate the reasons for not having a band as wide as would arise from the amendment of people subject to the marginal rate of 50 per cent. However, we have met part of the argument against earlier amendments, when the Chief Secretary said that the Government did not want to help people all up the scale, for we have now suggested a cheap amendment that would help only those with a little above average earnings. But he does not want to help them, either.
I have a feeling that, however cheap, however simple, however neat, however attractive any amendment we devise may be, the hon. Gentleman will find some reason for rejecting it. No doubt the Treasury will be well able to dream up reasons for rejecting any proposals that we may make. But it is a shame. I do not want to turn this into any kind of lighthearted debate, and I say quite seriously that it will not go unnoticed in the country that the Government have turned down all these attempts to help a group of people who come to us day after day and week after week to draw our attention to their many problems.
The hon. Gentleman should not underestimate the strength of that feeling. It is a widespread feeling among the groups we have been discussing. I am genuinely sad that the Chief Secretary has not been able to accept even the most modest amendment to help those suffering from the hardships that we have explained. The amendment suggested by my hon. Friend the Member for Kingston-upon-Thames (Mr. Lamont) would have helped some of these people to some slight extent.
§ Mr. Cope
I should like to correct my hon. Friend in one small respect. It is not a matter of the Chief Secretary accepting ways in which to help this group of people. It is a matter of our trying to 1301 prevent the Chancellor of the Exchequer from damaging them. We have been proposing amendments to a provision increasing the tax upon these people. We are trying not to improve their situation but to prevent the Chancellor from making it worse.
§ Mr. Newton
I am grateful for that correction. In my hasty notes, against the word "cost"—I had assumed that the Chief Secretary would resist the amendment on that ground—I have written "no cost at all", for it would not cost the Chief Secretary anything. The amendment would merely prevent his grabbing money from old people. It illustrates my observation on an earlier amendment that all that had happened so far this year—and I emphasise "so far", because pensions have not yet been paid—the only effect of Government policy that the pensioners have noticed, has been that the Government have increased the taxation of the incomes of many pensioners.
I conclude by emphasising what has been said about the 55 per cent. marginal rate. Regardless of what may be said about the objections, about the administrative difficulties of having a very wide band of people subject to marginal relief, all the problems pale into insignificance against the resentment that will be felt by these people every time they get a small increase of income, whether from a private pension or a State pension, when they will have to pay 55p in every pound at the margin.
Whatever arguments we use when we try to explain the tax system to elderly people, the resentment will remain. Whatever the reality of having a larger income or paying less tax, the old people will resent having to pay at the marginal deduction rate of 55p in every pound. There will be not only widespread misunderstanding but widespread resentment and anger, and the Government would have been sensible to go a long way to avoid that.
§ Amendment negatived.
§ Mr. Cope
I beg to move Amendment No. 42, in page 9, line 6, at end insert:' (5) In section 12 (widower's or widow's housekeeper), section 13 (relative taking charge of unmarried person's young brother or sister) and section 14 (widows, other single persons and husbands with disabled wives with 1302 children) for the references to £100 there shall be substituted a reference to £150, and for the references to £130 there shall be substituted a reference to £180'.
§ The Deputy Chairman (Mr. Oscar Murton)
With this we are to take the following amendments:
No. 47, in page 9, line 6, at end insert:' (5) In section 16 (dependent relatives) for the references to £100 there shall be substituted references to £150, and for the reference to £145 there shall be substituted a reference to £200'.No. 58, in page 9, line 6, at end insert:' (5) In section 16 (dependent relatives) for the reference to £145 there shall be substituted a reference to £175 '.No. 65, in page 9, line 6, at end insert:'(5) In section 12 (widower's or widow's housekeeper), section 13 (relative taking charge of unmarried person's young brother or sister), section 14 (widows, other single persons and husbands with disabled wives with children), section 16 (dependent relative), and section 17 (claimant depending on services of daughter), for the references to £100, £130, £145 and £55 there shall be in each case be substituted references to £150'.No. 66, in page 9, line 6, at end insert:' (5) In section 18 (blind persons), for the references to £130 there shall be substituted references to £150, and for the references to £260 there shall be substituted references to £300'.
§ Mr. Cope
These amendments relate primarily to the housekeeper and related allowances. No. 47 relates to dependent relative allowance. They propose increases in allowances that would not otherwise be affected by the Finance Bill.
I should say at the start that I used to have an interest in these provisions. It arose because my mother died of cancer when I was two, and my father had to struggle to bring up children in the war years and in the years immediately after the war, and he needed the assistance of a housekeeper to do so. The problems for the single parent family are difficult whether the single parent is the father or the mother, although the problems of each are different.
Those of us happy enough to be married and to have children and not in need of a housekeeper often forget the amount of work that our wives do as housekeepers and in looking after the children, although we are sometimes reminded of it. However, the single 1303 parent is brought up against these problems and fully appreciates the amount of work that a wife or husband has done. These people are affected in their different ways by this series of allowances. I am talking particularly about allowances for widows and widowers which arise under Section 12 of the Income and Corporation Act 1970.
The increases that I propose are very modest. I propose an increase in Amendment No. 42 of £50 in each of the allowances mentioned there. In Amendment No. 47 I propose an increase of £50 to the £100 figure and an increase of £55 to the figure of £145 in order to round it off to £200. I should say, particularly in view of an earlier amendment concerned with married and single allowances, when I referred to inflation, that I have described these proposals as modest because they are far less than would be required to bring these allowances to the level at which they would be keeping pace with inflation.
I am told that the housekeeper allowance, which stands at £100 and which I am proposing to increase to a mere £150, would need to be increased to £210 to maintain the value it had when it was first introduced. The modesty of my proposal will be seen when inflation is taken into account. No one should think that these amendments will make anyone rich. It is the tax on £150 with which we are concerned—£50 a year, £1 a week roughly speaking, which does not go far these days. Some of my hon. and right hon. Friends have been even more modest in their proposals which are included in the amendments we are also discussing. These give the Chief Secretary, if he objects to the cost of mine, the chance to take a less expensive route.
One point which is not covered in Amendments Nos. 42 and 47 is covered in Amendment No. 66 and deals with blind persons. The blind persons' allowance is well known. The proposal in Amendment No. 66 is to increase it from £130 to £150 for a single blind person. For a husband and wife both of whom are blind, the reference to £260 applies and the amendment would alter it to £300. These are very modest increases but they are important to those concerned. Such amendments would show 1304 that the Committee and the Government care about these people.
I accept that these allowances are complicated, but they are not quite at complicated as the allowances we discussed in an earlier amendment. It is a rather ramshackle system of allowances. It has been sorted out a little since I first began to study the tax system. There has been a great improvement. Nevertheless it is a ramshackle system, and I accept that my amendment does not assist in sorting out that system. This argues more strongly for the tax credit system which was proposed but which now seems to have been abandoned or at least shelved sine die.
The tax credit system could take account of these things. If it were coming along in the reasonably near future that would be an argument for not accepting amendments of this kind aimed at improving the lot of the disadvantaged in society. The fact that the tax credit system is not coming along makes it important to look at these allowances, ramshackle as they are, and to make the Government examine them and ask whether they are sufficient or whether inflation should eat into them until they become worthless so that the groups whom they are meant to help are gradually driven into the ground.
These are not complicated amendments. They are modest in amount. They argue for themselves. It is for the Treasury, if it can, to try to argue against them. All that they do is to try to restore the position a little to where it was in earlier years.
§ 7.45 p.m.
§ Mr. Norman Lamont
I want to address my remarks to Amendments Nos. 65 and 66 standing in my name. As my hon. Friend the Member for Gloucestershire, South (Mr. Cope) has said, the different allowances which are the subject of these amendments form something of a ramshackle structure. It is almost impossible to find any logic in the way the different allowances have been adjusted over the years. Amendment No. 66 takes the five allowance groups—widow's or widowers; housekeeper; relative taking charge of an unmarried person's young brother or sister; widows, other single persons and 1305 husbands with disabled wives with children; dependent relatives; and claimants depending on the services of a daughter—and makes them into one single allowance of £150.
There is a case for simplification and putting some sense into the system. These allowances have not kept pace with inflation in recent years. My right hon. Friend the Member for Altrincham and Sale (Mr. Barber) when he was Chancellor made the last decent increase when he increased them by nearly 30 per cent. Notwithstanding that, they have still not kept pace with inflation.
Comparing the value of the allowances today with their value in 1962–63, it will be seen that the allowance covering a relative taking charge of an unmarried person's young brother or sister stood at £75, which in today's purchasing power terms would be £144. The value of the allowance today is a mere £100. It is dramatically behind the rate of inflation. We find that the housekeeper's allowance was £75 in 1962–63. Its current purchasing power would be represented by £144 whereas it stands at only £100.
The allowances have moved differently over the years. The dependent relative allowance shows a slight increase over the 10 years. The allowance for widows, other single persons and husbands with disabled wives with children has also kept ahead of inflation. The others have all lagged behind.
There is a case for a fairly dramatic increase, and there is also a case for amalgamating these allowances. They deal with groups of people who have similar needs. One can imagine some situations in which a person might conceivably move from one allowance to another. There is therefore, a strong reason for consolidating them. Such a step would also have anticipated the development of the tax credit system. We would be expecting something like this to happen if, as would have been the case under the last Government, the tax credit system had been introduced with this year's Finance Bill. That is an added reason for merging the allowances.
1306 Amendment No. 65 simply proposes an increase in the blind person's allowance, which also has dramatically fallen behind the rate of inflation. In 1963–64 the allowance was £100, which at today's purchasing power would be over £190 in value. There is, therefore, a strong case for increasing the allowance because it has lagged behind inflation. One thing which has always annoyed me about that allowance is that it is wrong that it should be apportioned for a period of a year. If a person becomes blind during the year, he gets the allowance only for the remainder of the year, as though becoming blind was not penalty enough in itself. I wish that we could do away with the apportionment provision.
The main reason why I urge my hon. Friends to support the case for a substantial increase in the allowances, is to enable them to keep pace with the rate of inflation.
§ Mr. Newton
Having had something to do with the preparation of the amendments, I wish to add my support to what my hon. Friends have said. As we are proposing that the allowances should be increased, plainly we believe that the allowances are proper. It is worth stating that because we do not want simply to draw attention to the anomalies in order to expose the situation. We all accept that the case for having allowances to fulfil the purposes which they set out to achieve is very strong, and we should like to see them extended in some respects. The amendment which we shall next discuss deals with the possible extension of the allowances to people who do not qualify for them.
We are talking about groups of people who, because they have additional expense arising from their disability, or extra responsibilities for children, or problems arising from widowhood or widowerhood, have extra burdens loaded on them. It follows that they are people who have been finding life far from easy in the last few years, partly because of inflation. The problem of inflation underlies most of the amendments. On that ground alone there is a strong case for reviewing the level of the allowances. It is time that some of them were increased.
There is, however, a strong case for putting some of the allowances together 1307 and creating a uniform additional personal allowance within the existing tax system or, as we would hope, within a tax credit system having an additional personal tax credit covering a range of the problems we are discussing. From the point of view of moving towards a tax credit system or of simplifying our existing system, which I am sure the Chief Secretary dearly has at heart, it would make a great deal of sense to bring some of the allowances together at a single standard sum.
In many respects the situation is absurd. Like many other harassed taxpayers, I subscribe to Money Which? and study it with great assiduity when my income tax return arrives. This year it said in relation to the special allowance for the housekeeper or person looking after children:A widow or widower with a child, who has a woman relative living in the house as housekeeper or looking after the child, will do better to give up the housekeeper allowance.That sounds odd until one reads on and finds:He or she can claim, instead, the (higher) additional personal allowance for children and —if the relative qualifies—the dependent relative allowance as well.It seems absurd that if a person has a housekeeper living in the house for one purpose he can get one allowance and what is, in effect, a housekeeper living in the house for another purpose he can, by a complexity in the tax system, virtually choose to have a higher tax allowance.
Money Which? says about a blind person allowance:You cannot have both this allowance and a daughter's services allowance. Claim the larger one—normally the blind person's. But a widow or widower could have both the blind person's and a housekeeper allowance.On the allowance relating to the daughter on whose services a person is compelled to depend it says:If you are a widow or widower who qualifies for this allowance you would do better to class your daughter as your housekeeper and claim the (higher) housekeeper allowance of £100 instead—you cannot have both.It is entirely proper that people who in effect use their daughters as housekeepers should be told to classify their daughters as housekeepers if they can get a substantial increased tax allowance. How 1308 ever, a tax system which causes men and women to classify their daughters as their housekeepers is open to argument.
The amendments would cost a modest amount and would help to remove some of the anomalies. They would simplify the tax system and would pave the way to what I would describe as an additional personal tax credit in some future reform of the system and, perhaps most important, would help the people with the problems which we have been discussing to cope with life. On those grounds, it would be well worth the Chief Secretary giving at least some of the amendments serious consideration.
§ Mr. Higgins
I support what my hon. Friends have said. It is right and proper that we should take this opportunity to debate these matters. The Chancellor of the Exchequer has taken action on the married person's allowance and the single person's allowance, though not on a sufficient scale to offset the effects of inflation. The amendments cover groups of people who we have always felt it right should be given special consideration.
It would be more appropriate to deal with the broad principle of the present system and the alternative of a tax credit scheme on the Question "That the clause stand part of the Bill". But it is right that we should consider the allowances individually because, as I know, having spent three or four years in government, we have a ramshackle arrangement. When we were in office, my right hon. Friend the Member for Altrincham and Sale (Mr. Barber) and his colleagues considered all the allowances to see what changes were appropriate. However, they felt that fundamental reform of the system was necessary.
This year the Chancellor of the Exchequer—no doubt he was rushed for time and we appreciate that he had to construct his Budget in a hurry—has not taken effective action to help the people whom the amendments seek to help. That should surely give us considerable cause for concern. I hope that on each of the amendments the Chief Secretary will tell us the cost and the amount that would reflect the effect of inflation so that the real value of the allowances would be maintained from the date when they were last increased.
1309 8.0 p.m.
The people involved, like the old, are among those least able to protect themselves. They include the blind, widows and single women with a dependent relative. These are people who are least able to help themselves, and the House of Commons has in the past rightly given attention to them.
In normal circumstances we would say that the Budget judgment has been made and that the Chancellor has said that he can give only so much to the blind or to this or that group. But no increases have been given, and we are told that the Government might find it necessary to take reflationary measures in the autumn. I hope that' the Chief Secretary will not hide behind the argument that he made a speech outside the House of Commons and he does not want to go into it tonight.
It appears that the Chancellor has not taken a firm view. It is not simply a question of being concerned with the margin of error in forecasts. It is becoming increasingly apparent that the bias is in the direction of lack of aggregate demand rather than excess of it. Whether that is so on the wages front is another matter. I hope that the Chief Secretary will be able to express sympathy for these groups of people and tell us whether we can hope for some changes in the near future.
I have been associated in the past with the subject of Amendment No. 58, which deals with single women with dependants. It was some years before the plight of this group came to our attention, and eventually we succeeded in making provision to help them. That provision has been reviewed from time to time. Whereas the children's allowance goes up to £305, £275 or £240, depending on the age of the child, the dependent relative allowance remains unchanged at £145 for the single woman taxpayer. The job of looking after a dependent relative is every bit as difficult as looking after a child. Therefore, it is difficult to understand why the Chancellor feels it right to give an increase to the former and not to the latter group.
I invite the Chief Secretary to give us a sympathetic reply and to express the Government's view on whether there is a case for standardising the allowances. I leave the broader question of the tax 1310 credit system until we come to the debate on the Clause. The Government have now had more time to consider these matters, and I shall be grateful to hear their view on these groups who are among the most vulnerable in the community.
§ Mr. William Hamling () Woolwich, West
I should like to say a word or two on Amendment No. 58 which deals with a matter on which I have spoken on several occasions during the last eight or 10 years. I hope that my hon. Friend will give the Committee an assurance that single women with dependent relatives will be treated more generously under the Labour Government than they have been in the past. When my right hon. Friend the Member for Cardiff, South-East (Mr. Callaghan) was Chancellor, he made a significant change in the arrangements.
Those of us who are associated with the National Council for the Single Woman and her Dependants have made representations to successive Chancellors over several years. I have no doubt that if the council consisted of a body of men backed by a powerful trade union it would have received far more generous treatment from Chancellors of both parties. Without being patronising, one can say that the cause of women has not received from the House of Commons the attention that it should have received, and it is about time that it did.
§ Mr. Joel Barnett
It has been an interesting brief debate, and I am obliged to hon. Members for raising many of the matters that have been raised. I am sure that members of the Committee will be sympathetic to the case put forward by the hon. Member for Gloucestershire, South (Mr. Cope), particularly when he gave the instance of his mother having died of cancer when he was two years old. I am sure that all members of the Committee will have sympathy with single parent families. I certainly have.
Things have been said about me during these debates of which my late mother would never have dreamt. It has been said that I have at heart the simplification of the tax system. It was said in earlier debates that I had not got a heart, but that is not true. I have, and I am sympathetic, but I am not necessarily always sympathetic to 1311 simplification as such. Simplification is not always the best method of approach to a tax system. It is not necessarily the fairest way to go about it.
It is right to say that the system of allowances is ramshackle. These so-called secondary allowances have grown up over the years and there is a clear need to examine them. But we have to ask ourselves whether the best way to go about it is by this group of amendments.
The cost of Amendments Nos. 42 and 47 would be £23 million in a full year and £18 million in 1974–75. I am speaking of the amendments concerned with the widow's or widower's housekeeper allowance, the child minder allowance, the additional personal allowance, and the single woman's dependent relative allowance and other dependent relative allowances. It is proposed in the amendments that these shall be increased.
It has been said that the present system is rough justice. Indeed, it is, because the allowances grew up and they are anomalous, different allowances being applicable in each case. The present allowance for a dependent relative maintained by a single woman is £145. The widow's or widower's housekeeper allowance is £100 and the child minder allowance is £100. To deal with the matter in that way is rough justice and not necessarily the best way to go about it. I believe that we should look at the matter much more carefully than is sought to be done in these amendments.
§ Mr. Barnett
There are so many amendments in this group that it makes life a little difficult. The hon. Member for Gloucestershire, South seeks to increase the secondary allowances. I believe that there is a case for an increase in secondary allowances, but I wonder whether the hon. Gentleman's suggestion is the best way to go about the matter.
Let us take as an example the child minder's allowance. Very few people 1312 are aware of this allowance because it is not very much used. The child minder's allowance is for a single person who maintains a widowed mother or other female relative to look after a young brother or sister. I am told that it is a specialised type of allowance that is rarely claimed. Then there is the widower's or widow's housekeeper allowance. That allowance has long been considered anomalous, and I imagine that that is one of the reasons why our predecessors did not seek to increase it.
I think I should correct one point made by the hon. Member for Kingston-upon-Thames (Mr. Lamont), who said that the previous Chancellor of the Exchequer, the right hon. Member for Altrincham and Sale (Mr. Barber), had increased all the secondary allowances. I would remind the hon. Gentleman that that was concerned with an uprating following unification. There was no all-round increase, but that related to the removal of earned income relief. Incidentally, the Radcliffe Commission recommended that the widower's housekeeper allowance should be abolished. There are a number of anomalies in regard to secondary allowances. I believe that there is a case for reviewing these personal allowances, but not in a haphazard, crude sort of way by simply lumping the lot together or by taking particular allowances regardless of whether they have merit on their own account.
I should like to refer to Amendment No. 58, to which attention was drawn by my hon. Friend the Member for Woolwich, West (Mr. Hamling). It refers to the single woman who supports a dependent relative, and proposes an increase in the allowance from £145 to £175. Again the cost is not the important matter in deciding whether the Committee should accept the proposition. The cost amounts to about £2½ million in a full year and about £2 million in 1974–75. I willingly concede that the figure is not large, but even in that case the situation is not as simple as it looks. The allowance was first introduced by my right hon. Friend the present Foreign Secretary when he occupied the office of Chancellor of the Exchequer in 1967. That occurred at a time when it was recognised that single women faced a serious burden in terms of tax.
1313 The question now is whether that allowance should be increased. The Committee should recall that my right hon. Friend the Chancellor in his Budget increased generally all personal allowances. This has helped the single woman in the category to which the amendment refers as well as everybody else. It has been said that a strong case exists for increasing allowances, and in many instances that is so, but this is not to say that the Chancellor has done nothing at all about the situation. My right hon. Friend has made substantial increases in personal allowances generally.
§ 8.15 p.m.
§ Mr. Higgins
With respect to the Chief Secretary, he seems now to be deploying a bad argument. The increase in the allowance for the single person is significantly less proportionately, as the Chancellor in his Budget speech admitted, than is the allowance for the married couple. Therefore, the single person relatively gains less. The single woman with a dependent relative is in a vulnerable position, and such a woman is hit particularly hard by inflation. We are saying that the Government should take account of that situation. I stress that this is not a partisan matter. A married woman who looks after a child receives an increased allowance but the single woman who looks after a dependent relative of 80 or 90 years of age receives no increase in her allowance. I hope that the Chief Secretary will be a little more forthcoming, and I know that his hon. Friend the Member for Woolwich, West (Mr. Hamling) will support him if he says that he will look at this matter before the Bill reaches its Report stage.
§ Mr. Barnett
I have already said that I am not unsympathetic to some of these secondary allowances. However, I suggest that the way in which this group of amendments seeks to cover the situation is not the right one. I am not saying that on consideration—and I hope that we shall be able to consider it—we shall not be able to find some way of helping the situation.
I come to Amendments Nos. 65 and 66 in the name of the hon. Member for Kingston-upon-Thames. The hon. Gentleman seeks to increase the allowances in both cases to £150.
1314 As I said earlier, I do not think that it is necessarily right to take allowances which have been set differently relative to one another and to argue that they should all be increased to the same figure merely because they are simpler to understand.
§ Mr. Norman Lamont
But will the hon. Gentleman be a little more specific? It seems that all the people covered in those allowances are in very similar circumstances. Although the hon. Gentleman says that it does not make sense to put them all up to one level and that one may have a calculated relationship with another, it appears that they all affect the same sort of people in much the same circumstances.
§ Mr. Barnett
The hon. Gentleman is not proposing that they should all be increased proportionately. He is bringing them into line. The main reason for the complication of the present personal allowance structure is the number of different personal allowances that there are. It has been described as a ramshackle structure, and no one disputes that. But to say in this crude way that because they are all different allowances, without looking into why they are different and why they started differently, one should therefore bring them all into line regardless of why they started off differently surely is not what this Committee would wish to do. Surely the better way of dealing with it would be to examine each of them on its merits. The real way is to look at a system by means of which we can do away with this large number of personal allowances.
We have had several references to the fact that a tax credit system would do this. We did not like the tax credit system suggested by the previous Government, and I do not go back on that—
§ Mr. Hamling
I am sure that the Committee is very sensible of the logic of my hon. Friend's case in saying that the whole system should be simplified, but is my lion. Friend saying that the Government intend to do just what he has said?
§ Mr. Barnett
No. I shall come in a moment to what we intend to do.
I have given the reasons why we believe that it would be wrong to deal with the allowances in this haphazard way simply 1315 because there are relative, different figures as between one class of allowance and another, and that is why I am afraid that the Government cannot accept the amendments as they stand.
There have been all kinds of reasons for the implementation of particular allowances like the one which the then Chancellor of the Exchequer introduced in 1967 for single women and why, when that was introduced, it was different from other allowances obtaining at the time—
§ Mr. Newton
I think that it would help the Committee if the hon. Gentleman explained in one concrete case why the differences exist. Obviously his argument stands up as a logical Treasury-type argument that it does not make sense to sort it out. That is an argument that we all understand, even if we do not agree with it. But can the hon. Gentleman explain why a widower employing a female other than his daughter to look after him gets a tax allowance of £100 but that if he employs his daughter he gets an allowance of only £55? I am not sure that my figures are correct, but, even if I have gone wrong somewhere, the figures that I have quoted are close to being the situation.
§ Mr. Barnett
I shall give an example. However, I do not know why it is a typical Treasury argument simply because it is logical—
§ Mr. Newton
I am not attacking the hon. Gentleman's officials, still less himself. The point is that it is an argument that is pure logic, without regard to the practicalities. We all understand that there is no reason why all these allowances, in an abstract world, should be at the same level. But, looking at them in a practical world and considering the circumstances in which they apply, it is not possible to think of any reason for having different levels. The hon. Gentleman is trying to simplify the tax system, and we all pay lip service to trying to do that. We have here an amendment which will help the hon. Gentleman down that road.
§ Mr. Barnett
I am obliged to the hon. Gentleman for his help. Perhaps I may give an example of the indiscriminate nature of the proposed increases in the 1316 various amendments that we are discussing. In one case the amendment would abolish any differential in the amounts of secondary allowances, although some of these have become fairly specialised. One example is the daughter's services allowance or what was the housekeeper allowance for the single person who maintained his widowed mother to look after a young brother or sister. It is difficult to see the logic of a proposal which would increase the daughter's services allowance by £95 but the allowance for the single woman supporting a dependent relative by only £5.
All these amendments are indiscriminate. We have great sympathy for the single woman who has not gone out to work and not married but instead has looked after her mother. But the amendments are so indiscriminate that they are not the way to go about it.
We also know that the Finer Committee on the one-parent family will be publishing its report fairly soon. We believe that it will indicate that there is need for relief in many directions. Therefore, I should like, with the Committee's permission, to reconsider all the secondary allowances, especially the additional personal allowance, after the Finer Committee has reported. I believe that that will be before we reach the Report stage of this Bill. I assure the Committee that I shall give very serious consideration to these secondary personal allowances, not least the additional personal allowance, and that it will be my hope to make a concession on those grounds, although obviously I cannot go any further than that at the moment.
§ Mr. William Clark
The hon. Gentleman has referred to the Finer Committee. Are we to take it that he will accept the recommendations of the Finer Committee? If the Finer Committee says that it would prefer one-parent families to be absorbed in a tax credit scheme, will the Government accept that recommendation?
§ Mr. Barnett
The hon. Gentleman should know better than to ask such a question. I have no idea what the Government will decide about the Finer Committee's report. I have described the way that I hope to approach this whole problem. With that, I hope that the Committee will accept the matter and allow these amendments to be withdrawn—
§ Mr. William Clark
But cannot the hon. Gentleman go any further? He prays in aid the report of the Finer Committee. This Committee gets the impression that, in the light of what the Finer Committee says, the secondary allowances will be increased. Is that right?
§ Mr. Barnett
The hon. Gentleman has been here a long time. I have said that I am prepared to consider the matter in the light of the Finer Committee's report, and I hope that that will be available before the Report stage of this Finance Bill. When the Finer Committee's report is available, I shall give consideration to all the secondary allowances, not least the additional personal allowance.
§ Mr. Higgins
We are making some progress, but the clear implication of what the Chief Secretary has said is that he will read the report of the Finer Committee and will come forward with proposals on Report. Other than that, I do not see that the hon. Gentleman has said anything at all. Is that what we are to understand, or is he simply saying, as a matter of interest to the Committee, that he will have read the Finer Committee's report before the Bill's Report stage, which is a different kettle of fish? We should be clear about what he is saying. The implication was that, having read the Finer Committee's report, the hon. Gentleman will come forward on Report with proposals, or at least some amendments will appear on the Paper. Am I that wrong? If so, what was the hon. Gentleman talking about?
§ Mr. Joel Barnett
I want to make it absolutely clear. I am not saying at this stage whether or not the Government will accept what appears in the Finer Committee's report. What is perfectly understood, however, is that the Finer Report will deal among other things, with single parent families, and in the light of that I am saying that I shall look at the secondary allowances. I cannot go beyond that.
[Mr. GURDEN in the Chair]
§ 8.30 p.m.
§ Mr. George Cunningham () Islington, South and Finsbury
As the Chief Secretary has undertaken to examine all these secondary allowances, may I ask him to give particular attention to an anomaly relating to the dependent 1318 relative allowance? At present, any person claiming the dependent relative allowance has two limitations to the relief that it brings. There is first the limitation in the deduction from income which is taxable, and there is the limitation on the income of the dependent relative, which must be only that of the retirement pension at the time.
Anyone who knew enough to adopt the alternative procedure would make a deed of covenant in favour of the dependent relative and by that means escape both limitations. We have, therefore, a system under which a person who is sophisticated enough to be able to do that and to put up with the inconveniences—and there are some—which result from using a deed of covenant can get a higher relief than someone who uses the straightforward tax allowance, about which most people who are entitled to it know.
I do not ask the Chief Secretary to respond to that matter now, but if we are reviewing these things, because of the alternative possibility of the deed of covenant provision, at least the limitation in respect of the recipient's income ought to be made more generous or, perhaps, removed.
§ Mr. Hamling
I welcome what my hon. Friend the Chief Secretary has said about the Finer Committee's Report. Those of us who have been concerned with these matters have awaited that report for a long time with great interest. We are concerned not only with single women with dependent relatives but with a great number of people, such as widows, who have been neglected for too long. I am delighted to hear from my hon. Friend that the report is expected so soon. I am delighted to have his assurance that the Government will look at it in relation to the secondary income tax allowances.
With regard to what my hon. Friend the Member for Islington, South and Finsbury (Mr. Cunningham) has just said, we are concerned not only with people who have incomes and who are able to make covenants but also with the very large number of cases in which there is no income as such. The parents might be on social security. What we have been concerned about in the past in these debates is that the single woman who has no income of her own—perhaps because she has given up her employment or has 1319 been unable to obtain employment— should also, in order to look after the dependent relative, be given some consideration. That is outside the scope of this Finance Bill but is something which should be put on record.
§ Mr. Joel Barnett
I said that I would consider the question of secondary allowances in the light of the Finer Committee's report and this debate. That was all. I did not say that it would be anything else.
§ Mr. Cope
These are matters for debate. It would have been helpful, however, if the Chief Secretary had told us about this an hour ago. We might have saved a little time. However, in view of what the hon. Gentleman has just said about a review or consideration, I beg to ask leave to withdraw the amendment.
§ Amendment, by leave, withdrawn.
§ Mr. Norman Lamont
I beg to move Amendment No. 52, in page 9, line 6, at end insert—' (5) In section 18 (blind persons), for the references to "registered blind person" or "registered blind persons" there shall in each case be substituted "registered blind person or registered disabled person" or "registered blind persons or registered disabled persons"'.This is a probing amendment to discover the arguments, which will no doubt be advanced by the Chief Secretary again, against enlarging the blind person's allowance to cover disability in general. A similar amendment has been moved in previous years and I am familiar with some of the arguments against it. but it 1320 is not without reason that the matter has come up several times.
Whatever the administrative arguments, it is now generally recognised that the blind person's allowance was based on an out-of-date concept, when blindness was an obvious and visible form of disability. It is only in recent years that there has been an increasing awareness of the general problems of disability within society.
I appreciate the administrative argument that blindness is an easily identifiable disability, but tax treatment for the disabled should be determined by source and degree of disability rather than by administrative convenience. We now have much more experience in assessing disability, under the industrial injuries scheme and the administration of the constant attendance allowance, and we have more sophisticated methods of assessment.
The amendment would give the Inland Revenue certain tasks in assessing disability which would have to be done through the normal social services organisation. In this sense it paves the way towards the tax credit system and, through that, to the creation of a disability income which is what organisations for the disabled like the Disablement Income Group have always wanted. If we could get a tax allowance for all the disabled and from that move into a tax credit scheme, we could then progress to a disability income. That is all the more urgent because there is no specific tax allowance for disabled people.
Many people are not covered by our present social security arrangements, particularly those who are born disabled and disabled married women at home. Many people who deserve help are not capable of working but can look after their families and therefore do not benefit from the constant attendance allowance.
The amendment might be expensive, and the Chief Secretary will probably say that the extent of disability within society is largely unknown. One argument might be that the registered disabled are only the tip of the iceberg. But the feeling is growing that the disabled have not been adequately served by our tax system. Something like the amendment will one 1321 day be necessary if we are to move forward, as we will have to do, to a disability income.
§ Mr. Hugh Dykes (Harrow, East)
I wish to intervene only briefly following the comprehensive explanation of the rationale of the amendment by my hon. Friend the Member for Kingston-upon-Thames (Mr. Lamont), and to support wholeheartedly what he said and to add my plea to the Chief Secretary that he should consider the amendment and its full implications.
My hon. Friend the Member for Kingston-upon-Thames was modest in saying that it was a probing amendment and presumably, therefore, the intention is to go no further than to probe, but I would like to aim for more than that, although this is entirely a personal view, because this has now become an urgent and important matter.
I warmly endorse what my hon. Friend said and I shall add some additional points. The administrative argument which might be constructed against extending from the obvious and tangible category of the blind person to a special allowance to disabled persons as a whole, as a generic category, can be gainsaid by our increasing practical experience in many ways, including work by local authorities and central departments, particularly the Department of Health and Social Security, and also because even in a legal sense the concept of the disabled person has moved from being just a fairly vague conceptual impression in the mind of many people to a definitive legal concept, the concept of a registered disabled person as now endowed and approved by Parliament in the Private Member's legislation originally introduced several years ago.
I do not think that the administrative arguments which might be deployed by the Chief Secretary in his pre-Finer mood will necessarily carry the weight which would contradict the valid argument for the Government deciding to take action on this substantial front. This is an important category of people, and it may be that there are important differences to be ironed out between those who are in a formal sense registered disabled persons and those who are not, between the various gradations of disability, whether congenital or created physically during 1322 a person's life. There are all sorts of admittedly complex details to be ironed out. But in talking with members of DIG and other disabled persons in my constituency, and with those working with the disabled, including those in local voluntary associations for the disabled, I find that there are, not on intermittent occasions but fairly frequently, now articulate blind people who say that although they are blind, which is a severe disability, they know many disabled people whom they regard as being much more disabled intrinsically than they are. There are innumerable examples of active blind people who still do a virtually full-time job or perhaps a part-time job in their homes, and we admire them for this. We know also of sighted people severely disabled from other causes. One example is a woman, a constituent of mine, who tries to do an eight-hour day in her home flat on her back, doing a writing or telephoning job, which is a tremendous tribute to her tenacity, but she does not qualify, except for any special assistance which may be available under separate legal provisions, for special treatment. This is increasingly an old-fashioned anomaly.
Many associations and organisations for blind people would welcome an extension to cover disabled people in general. This would be perhaps a mirror image of the inception of a national disability income, transcending party lines, which more and more people in the House of Commons want. There was an important rally connected with this in Trafalgar Square yesterday.
For all these reasons, and for many others which could be raised except that the debate would go on too long, I hope that the Chief Secretary will be able to say a little more, bearing in mind what he said previously, which was a welcome indication of his willingness to look at anomalies which worry hon. Members on both sides. This particular problem needs to be resolved in the fairly foreseeable future.
§ 8.45 p.m.
§ Mr. Joel Barnett
I am always obliged to the hon. Member for Kingston-upon-Thames (Mr. Lamont) for the way in which he moves his amendments, because he saves us the need to reply by giving the reply in his own remarks. He 1323 has just done the same on this amendment.
As was evident from the fact that the hon. Gentleman called it a probing amendment, this proposal goes far wider than did the amendment on the fairly narrow question of investment income dealt with on another occasion by my hon. Friend the Financial Secretary. Both the hon. Member for Kingston-upon-Thames and his lion. Friend the Member for Harrow, East (Mr. Dykes) touched on the question of defining the nature or extent of disability. One may have on the register the type of disabled person suffering severe disability—the hon. Member for Harrow, East gave some examples— whose case is, in fact, worse than that of a blind person. There are such terrible cases, and one would always wish to help. Equally, however, one may have on the register a person whose disability is nowhere near so severe; his disability might be regarded as fairly modest, although I readily agree that not one of us would wish to suffer it.
Thus, the whole question is most complex, and this is why we are worried about the whole problem of identifying classes of disability. I believe—I am sure that most hon. Members, on reflection, will agree—that it is best to deal with the disabled through the social security system. The Government are under a statutory commitment, under Section 36 of the Social Security Act 1973, to review our social security provision for chronically sick and disabled persons and to lay a report on that review before Parliament by 31st October 1974. I cannot comment on the progress made so far, save to say that the Government wholly accept that commitment and intend to abide by it.
I submit that that is the best way to deal with the matter, because it would reach those disabled people who do not have sufficient income to pay any tax at all. That is the way we have in mind to deal with it. Indeed, I know that this is the view taken by the hon. Member for Worthing (Mr. Higgins), because, when he was Financial Secretary in 1973, he said:It is none the less true, by and large—I would not wish to generalise absolutely—that 1324 help is more efficiently directed if it is done through the social security system than through giving taxation relief of one kind or another." —[OFFICIAL REPORT, Standing Committee H, 23rd May 1973; c. 697.]I agree with the hon. Gentleman—that is the way to deal with it—and I imagine that most hon. Members on both sides will accept that line of argument.
For those reasons, I am not able to accept the amendment so reasonably moved by the hon. Member for Kingston-upon-Thames. I hope that the hon. Gentleman will accept that what we have in mind is to provide help for the disabled through the social services and through the work of my hon. Friend the Member for Manchester, Wythenshawe (Mr. Morris), who is now the Minister responsible for these matters. I know that all hon. Members and disabled people outside the House will be only too well aware of how much my hon. Friend has done, of how much more he will hope to do, and, indeed, of how much more the Government will hope to do. I am sure that that will be the best way to go about it.
§ Amendment, by leave, withdrawn.
§ Question proposed That the clause stand part of the Bill.
§ Mr. William Clark
The Chief Secretary has told us that about 2 million people have been taken out of the tax bracket. I do not doubt that figure as it stands, but I think it a little dishonest of the Government to say that 2 million are taken out of the tax bracket when we know only too well from all the problems of inflation that we have discussed that as a result of rising incomes a good many more people will come back into the tax bracket. I am pretty sure that by the end of the fiscal year—perhaps the Chief Secretary will comment on this—there will be not a net reduction but an increase in the number of people in the tax bracket.
We have discussed all the various allowances, and on both sides of the Committee we are well aware of the anomalies and differences. Some of them are pretty archaic, and, what is more, they are unfair because they give a benefit to one person but not to someone else who should be equally entitled to it.
1325 Under our tax system it is all very well giving a tax allowance to someone but that affects only the person who is actually paying tax. The person we want to help is possibly not in the tax bracket. That is why I regret, as do my hon. Friends and, I am sure, hon. Members on the Labour side, that the Government have set their minds against a tax credit system. Such a system would at least help the person on a lower income. We have been talking about a housekeeper allowance and a dependent relative allowance and so on. Under the tax credit system the dependent relative would be covered. That person would have an income in his own right, and it would mean that he, could pay the daughter or son to look after him. That is much better and far more dignified.
We have just had a debate on the disabled. The Chief Secretary said that the Financial Secretary would look at the question of investment income for disabled persons. I look forward to him accepting our view that they should get an extra allowance, or at least the same allowance as a retired person. The Chief Secretary said that the best way of dealing with the disabled is to give them a cash payment. I could not agree more. It is all very well giving a disabled person a tax allowance, however, but that allowance will benefit only people in the tax bracket. The Minister suggests a cash payment through social security, but I differ with him on that. The tax credit system included machinery to cover the disabled person.
One could attribute the same economics to blind persons who at the moment get an allowance. If a blind person is paying tax the allowance is of some value. If he is not it does not matter whether the allowance is £500 or £1,000 a year, because it will not benefit him. That is one of the advantages of the tax credit system. The system has various side effects. For example, it cuts out the nonsense of not taxing all income, under which some people can get an income from social security or elsewhere which is not taxable and can in some instances for two, three or four weeks after having stopped working end up with more take-home pay than when they are in full-time employment and assessed under PA YE.
I want to know why the Socialist Party is against the tax credit system. In the 1326 Select Committee, which had four Socialist members, there was a division. Three of the four—the Chief Secretary, the hon. Member for Ashton-under-Lyne (Mr. Sheldon) and the present Secretary of State for Social Services—voted against the tax credit system. But the man who was at one time Chairman of the Parliamentary Labour Party, the former right hon. Member for Sowerby, voted for it. I am delighted that the Liberals supported the main report. It is all very well for the Chief Secretary to say, presumably speaking for his party, "We thought that the tax credit system was not the right one." I do not think that is true. The man who voted with us on the main report has had promotion and has gone to another place. I am told that life there is easier than it is here.
One of the arguments against a tax credit system is that it is not sufficiently flexible. Never has so much nonsense been spoken. The Chief Secretary and the Financial Secretary know, and the Chancellor of the Exchequer should know, that the flexibility within the tax credit system is equal to that in our present PAYE system, but I do not intend to pursue that matter.
The Temporary Chairman
Order. I take it that the hon. Gentleman was referring to the tax credit system so far as it affects personal reliefs, and nothing more.
§ Mr. Clark
I am referring to it only as it affects personal reliefs and secondary allowances, Mr. Gurden. Those are the sort of reliefs and allowances that one can bring into a tax credit system.
We have been arguing about whether the married and single persons' allowance should be increased. They are mirrored within the tax credit system, in that a married man will receive £6 cash allowance each week and if his income were such that he did not have to pay £6 tax he would receive the balance from the Inland Revenue. The Chief Secretary wants simplification in our tax allowances. That is one way in which we can have it.
Year after year successive Governments talk about whether they should increase the earned income relief—though that has now gone because of the action of my right hon. Friend the Member for Altrincham and Sale (Mr. Barber). They 1327 talk about increasing the married allowance, the single allowance and the child allowances at different ages and they argue about whether they should increase the dependent relative allowance and whether they should give the blind and the disabled an allowance. It is high time that hon. Members and the country realised that the sooner we have a tax credit system, giving positive benefits to the low paid, the blind, the disabled and so on, the better.
That is why I very much regret the negative approach of the Chief Secretary and the Treasury to the tax credit system. I understand that, under the previous Government, the Treasury and certainly the Department of Health and Social Security were in favour of a tax credit system.
I hope that the underlying reason why the Labour Government do not want a tax credit system is not political. I also hope that it is not sour grapes because they did not think of it themselves.
§ 9.0 p.m.
§ Mr. Higgins
The Committee will have listened with considerable interest to my hon. Friend the Member for Croydon, South (Mr. Clark), because he was the Chairman of the Select Committee which was particularly concerned with the proposals for a tax credit system.
We have now been debating for some hours and in considerable detail the proposals in the Bill and the amendments that my hon. Friends and I have pressed upon the Government. I think that there is universal agreement that the present system of so-called secondary allowances is ramshackle and full of anomalies. It is clear from the answers of the Chief Secretary that it has not sustained the value of the allowances in real terms, allowing for the effect of inflation.
Many of the secondary allowances are of benefit to the hard-hit groups with which the Committee rightly has sympathy. There has been no agreement concerning them even in money terms. It has been the constant thread of our debates that a better system should be devised. The fact is that a better system was devised by the previous Conservative Government. We put forward our proposals for a tax credit scheme. We had hoped that it would be possible to make 1328 that a matter on which there would be all-party agreement. It was for that reason that my right hon. Friend the Member for Altrincham and Sale (Mr. Barber) proposed that the matter should be discussed as widely as possible within the House. In due course a Select Committee was set up which considered the matter in considerable detail.
The previous Government hoped that it would be possible to proceed on a sensible and all-party basis. It was an immense disappointment to my right hon. and hon. Friends and myself when in the Budget Statement the Chancellor of the Exchequer came up with the proposals in the clause which we are now considering.
The Chancellor, when referring to the tax credit system, said:Before describing my direct tax proposals, I should outline very briefly the Government's position on a tax credit system.We believe, as we explained at length in opposition, that there are serious drawbacks to the tax credit scheme proposed by the previous administration. They were fully described in the Minority Reports of the Select Committee. We have not taken any decision against the principle of a negative income tax, which was the subject of considerable study under the previous Labour Government, but our immediate priority has been to carry out the major increase in national insurance benefits which I have referred to."—[OFFICIAL REPORT, 26th March 1974; Vol. 871, c. 312.]That being so, it must be said that the previous Labour Government did not produce anything as well worked out as the proposals in the Green Paper. The tragedy is that the present Government, instead of asking whether their advisers were ready by way of a tax credit scheme—they would have received the answer that legislation was well advanced and could be produced immediately—produced the statement which I have just quoted.
The result is that we have a hotchpotch of measures which are inadequate protection against inflation. They do not cover a great many of the hard cases that we have been discussing. They have been introduced instead of announcing proposals for a tax credit scheme. The previous right hon. Member for Sowerby, Mr. Houghton, who is now in another place, found in favour of such a scheme. The Committee will recognise that his experience of social security benefits was of long standing and that he brought 1329 great expertise to bear. 1 do not think that anyone would dispute that.
Many of us felt that the arguments put forward at that time by the hon. Member for Heywood and Royton (Mr. Joel Barnett) and his hon. Friend the Member for Ashton-under-Lyne (Mr. Sheldon) and the somewhat different arguments put forward by the present Secretary of State for Social Security were not well founded. I believe that if they asked their present advisers they would be told that they were not well founded.
It is regrettable that we are not able to proceed on that basis. The fact is that there were considerable advantages in the scheme which had we been in office we would have most certainly legislated for in our Finance Bill. It is inevitable that the lead time for a reform as radical as a tax credit system is considerable. Such a system cannot be introduced overnight. It takes a considerable time to prepare such legislation and then a considerable time to implement it. As a result of the Government having decided not to introduce such a scheme this year we shall lose a year at least. That will be to the disadvantage of the British people.
The tax credit system would have excluded certain groups—the self-employed, for example, for whom other arrangements would have been made, and families mainly dependent on supplementary benefits, who would have needed something in addition to the system. But it would have covered about 90 per cent. of cases of the kind we have been discussing today. It would have been of very considerable advantage, for example, to one-parent families and to the married woman. There was some misunderstanding originally about credits being given to the children, but my right hon. Friend the Member for Altrincham and Sale made it clear that they would be paid to the mother.
There were, therefore, considerable advantages in the tax credit system which this clause does not give. It would have got us over the problem of the poverty trap situation, where the family income supplement is continued at the same time as there is an overlap with the tax threshold. I shall not go over that argument again, but nevertheless there is a difficulty, which the hon. Gentleman clearly recognised and to which he had 1330 no solution other than to admit that the tax credit system would have provided a solution. It would have reduced greatly the need for means testing. It would have been of considerable advantage which we are unfortunate not to have the opportunity to approve at present.
The tax credit system would also have benefited not only taxpayers but those below the tax threshold, particularly the pensioners whose case we have already debated. Taking all these amendments, and covering an even wider area, the tax credit system would have given the opportunity to improve the way in which the Government are able to deal with the very real social problems we are faced with. Moreover, it would have been a simplified system, and would have reduced greatly the number of civil servants required.
For all these reasons, it is a matter of great regret that we do not have the tax credit system before us today. It is an opportunity delayed at the very best. 1 hope that it is not an opportunity missed. I said earlier that it was not the policy of the Opposition to shoot Santa Claus, so we shall not vote against the clause. At the same time, we are very sad that we do not have a more comprehensive and sensible proposal, which had been worked on, developed and was ready for legislation, and from which the Government have run away. I hope that the hon. Gentleman will let us know precisely what the Government's position is on this issue now. I hope that he will confirm that the Government are prepared to go ahead with such a scheme.
§ Mr. Joel Barnett
In this clause we are discussing personal reliefs, and that is as good a reason as any why it does not include a tax credit system. A number of points have been made passionately, as always, by the hon. Member for Croydon, South (Mr. Clark). He and I have debated tax credit systems upstairs and downstairs for a long time.
I make it clear that the Government are not opposed to any tax credit system. They are opposed to the tax credit system suggested in the Green Paper of the Conservative Government. It is that system to which we are opposed, not a tax credit system of itself. It may well be possible to devise a comprehensive tax credit 1331 system which is fair as between one taxpayer and another. I am far from convinced, as I showed when we discussed the matter in the Select Committee, that the tax credit system proposed by the Conservative Government was anything like fair.
The hon. Member for Croydon, South said that by a tax credit system we would help the disabled and the lowest income groups and all sorts of other people by means of cash grants. That is true. He went on to say, however, that there would be some side effects. He mentioned some that would be beneficial—the fact that there would be, for example, a £6 cash allowance weekly. But he forgot to mention the not insubstantial side effect that the whole lot would have cost £1,300 million, and we have never been informed how that money would be found. The hon. Gentleman also forgot to mention the side effect that the vast majority of taxpayers, more than 90 per cent. of them, would be stuck with the same basic rate one with another. I do not consider that to be the best way in which to provide a progressive tax system, and I stick by everything I said at the time of the Select Committee.
When the hon. Member for Worthing (Mr. Higgins) talks about a tax credit system and providing extra allowances and bigger net incomes, it has to be remembered that there is no miracle in a tax credit system or anywhere else. If incomes net of tax are increased by the tax credit system, or in any other way, the money must come from somewhere. It can be provided by printing paper, as happened all too frequently during the course of the past nearly four years.
But the £1,300 million is one side effect that somehow neither hon. Member cared to mention. If a tax credit system costing £1,300 million is introduced, how that sum is to be financed is important, because its method of financing could affect all those who would greatly benefit, as the hon. Gentleman told us, from the tax credit system.
§ Mr. William Clark
Whatever the figure, whether £1,300 million or £650 million, would the hon. Gentleman care to say who would benefit from such a reduction in taxation?
§ Mr. Barnett
When taxation generally is reduced, and that is what the tax credit system is intended to achieve, the individuals who benefit most are those with the largest incomes.
§ Mr. Clark
I could not agree more, but the Chief Secretary is missing the point. Under the tax credit system, the people who are not in the tax bracket also get a cash benefit. As he knows, the figure of £1,300 million was illustrative. But whatever the figure, whether £1,300 million, £650 million or anything else, who would benefit from that reduction in revenue?
§ Mr. Barnett
It is the hon. Gentleman who is missing the point. If we give a benefit of £650 million, or whatever the figure is, given that there is a revenue neutral situation, the money must come from somewhere. If it is taken from indirect taxation, that will certainly hurt most those whom the hon. Gentleman claims will be helped by the tax credit system. The money cannot be taken from direct taxation, because it is precisely the direct taxation system which is hurt most by the tax credit system proposed in the Green Paper.
Clearly I am stepping miles out of order, Mr. Gurden, and I hope that you will forgive me, but I have been trying to reply, if only briefly, to some of the issues raised in this debate. The clause provides personal reliefs totalling £684 million. I think that it will be acceptable to the Committee, and I therefore commend the clause.
§ Question put and agreed to.
§ Clause 11 ordered to stand part of the Bill.