§ 10.0 p.m.
§ Mr. Lawson
I beg to move Amendment No. 46 in page 18, line 32, after '(1)', insert:'Subject to subsection (4) below,'.
§ The Chairman
With this, we may discuss the following amendments:
No. 50, in page 19, line 1, after '(2)', insert:'Subject to subsection (4) below,'.No. 51, in page 19, line 4, after '(3)', insert:Subject to subsection (4) below,'.No. 52, in page 19, line 8, at end add:'(4) If, at a relevant anniversary, the official Retail Price Index shall rise above that obtaining on 5th April 1975, the Treasury shall, by Order, substitute for the following amounts specified in this section—
such higher amounts as shall have the same purchasing power (calculated by reference to that Index) as the corresponding amounts above had on 5th April 1975.
- (a) £955 in subsection (1)(a)
- (b) £675 in subsection (1)(b)
- (c) £280 in subsection (2)
- (d) £180 in subsection (3)(a)
- (e) £360 in subsection (3)(b)(5) For the purposes of this section, a relevant anniversary is the end of the year beginning on 6th April 1975 and the end of each subsequent year.'.
§ Mr. Lawson
These amendments, of which Amendment No. 52 is the amendment of substance, are again amendments to index the personal allowances. It is the most elegant of the various indexation amendments which have been drafted and put on the Notice Paper, although I 1342 think in retrospect it is capable of improvement.
Basically, the idea of the amendment is that the various personal allowances—the single allowance, the married allowance, the widow's allowance and the allowance for blind persons—should remain as they are for the current financial year but that for subsequent financial years each year should be increased according to the rise in the retail price index.
It will be interesting if the Minister can give the Committee some idea of what the amendment would cost. If he can do that, we shall then know what the rate of inflation will be over the coming year. I am sure that that information will be useful to the Committee.
This is an indexation amendment the wording of which has been taken from Schedule 5 of the last Finance Act, and it usefully provides a mechanism whereby each year there can be the appropriate increase in these allowances, as is only equitable and right.
I will not go over the arguments for indexation again. The Committee has heard them at some length. I suspect that a better mechanism might be that used in Canada where they relate the average consumer price index for the twelvemonth period ending a few months before the tax year to the corresponding average for the twelve-month period on a base year and get an inflation factor which can be written into the allowances concerned. This provides an inflation element which lags a little behind the rate of inflation but which moves along an average sufficient for the Canadians to even up fluctuations in the ordinary price analyses and which also enables them to make the necessary calculations for PAYE and other purposes in terms of what the allowances should be.
The advantages of indexation have been deployed by various hon. Members. It is clear that the argument has been won by those who support it. Only two objections were raised by the Minister of State in reply to earlier debates.
1343 The hon. Gentleman said that there might be problems of anticipation. By that he seemed to envisage that, if indexation were introduced, the trade unions would decide suddenly that this meant that inflation would be much worse and that they ought to put in big wage claims. Certainly the absence of indexation has not caused moderation in wage claims, whether or not they are the factor which causes inflation. If anything is likely to cause an acceleration in wage claims, it is the thought that there may be a statutory incomes policy or a wage freeze in the offing. Then certainly there would be problems of anticipation. It may be that the hon. Gentleman had that in mind and that his argument got slipped into the wrong context.
The other argument of the Minister of State was that indexation would be justified if we were in a period of high and continuing inflation, but we were not. I suspect that most hon. Members think that we are in a period of rather high inflation. Anyone with any understanding of the way that the economy works will know that it will not be brought down over night. Even if, as we hope, it starts going down later this year there will be continuing inflation at a high rate for some time to come.
It means, therefore, that the conditions which the Minister said would be appropriate for indexation appertain at present. In view of that, I trust that he will accept the amendment.
§ Mr. Sheldon
We are going over almost the identical ground that we covered in an earlier debate. I noticed that the hon. Member for Blaby (Mr. Lawson) kept his remarks short because he felt that that was so.
He asked for the cost of these amendments. Perhaps I may give him some information on that, because we are now talking about the personal allowances, and the estimate we have is that it would cost an additional £1,200 million if the personal income tax thresholds were all increased this year sufficiently to keep their real value.
§ Mr. Lawson
If the hon. Gentleman will read the amendment he will see that, as I made clear in my remarks, it proposes no increase whatsoever this year. Only if at the end of this year there had 1344 been an increase in the cost of living would there be an increase in allowances next year. There would not conceivably be any cost this year.
§ Mr. Sheldon
The hon. Gentleman asked me for the cost. Naturally I cannot provide a cost for the position next year, since nobody knows what it will be. Seeking to assist him as far as I am able, I gave him what would have been the cost had it applied to the current year, and that is the position.
The hon. Gentleman asked me one or two questions following on our further exchanges. Perhaps I may deal with those. He questioned the argument that I used on the earlier amendment about anticipation. The Committee will recall that we were at that moment discussing what would be the disadvantages of indexing, and I pointed out that, whatever one were to do in the way of framing an amendment to index allowances or thresholds, or whatever it might be, an attempt to force the Government to forgo some of its independent power of action must be self-defeating. We went into that at very great length, so I do not think it necessary to pursue the same matter further.
On the question of anticipation, since the hon. Gentleman raises it, the obvious example, as I said—indeed, as the hon. Gentleman the Member for St. Ives (Mr. Nott) said—was that the question of anticipation arises from the fact that trade unions have a function, and if it is to be said that as a result of an amendment carried in this Committee that increases are going to be automatic as a result of an indexing arrangement made, however it might be, the function of the trade unions is severely limited, as it removes some of the main purposes for which they act. That was the argument used by the hon. Member for St. Ives, with which I would agree.
§ Mr. Lawson
My hon. Friend the Member for St. Ives (Mr. Nott) was talking about the indexing of wages. In this amendment we are talking about the indexing of tax allowances.
§ Mr. Sheldon
But the hon. Gentleman drew me back to my earlier comments on anticipation and I had to reply with the cost of anticipation dealt with in that particular context, and this is what I said.
1345 So, as I have said, and as the hon. Gentleman again repeated, there could be a case for indexing if we were so foolish as to accept a continual, high and regular level of inflation of a kind which we do not have at the present time and which the Government are determined not to have. In a situation such as exists in certain parts of the world the question of indexation would obviously become much more pressing and would receive much greater consideration. That time is not now, and I hope will never be, and in that case I see no need for indexation in the way that the hon. Gentleman has requested.
§ I believe that what we have at the present time is a willingness on the part of the Government to survey the position year by year, to make the changes based on the extent to which those allowances are eroded and to take into account at the same time the needs for revenue and the particular individual circumstances affected. Those are the factors taken into account by the Government. I think that is the right way to proceed and I would advise my hon. Friends not to accept the amendment.
§ Question put, That the amendment be made:—
§ The Committee divided: Ayes 37, Noes 148.1347
|Division No. 213.]||AYES||[10.15 p.m.|
|Arnold, Tom||Hampson, Dr Keith||Sims, Roger|
|Awdry, Daniel||Hooson, Emlyn||Skeet, T. H. H.|
|Carlisle, Mark||James, David||Smith, Cyril (Rochdale)|
|Chalker, Mrs Lynda||Kilfedder, James||Stainton, Keith|
|Clegg, Walter||Lawrence, Ivan||Stanbrook, Ivor|
|Cooke, Robert (Bristol W)||Lester, Jim (Beeston)||Townsend, Cyril D.|
|Cormack, Patrick||Mitchell, David (Basingstoke)||Wiggin, Jerry|
|Corrie, John||Morgan, Geraint||Wigley, Dafydd|
|Dean, Paul (N Somerset)||Morrison, Hon Peter (Chester)||Winterton, Nicholas|
|Evans, Gwynfor (Carmarthen)||Page, Rt Hon R. Graham (Crosby)|
|Farr, John||Pardoe, John||TELLERS FOR THE AYES:|
|Fisher, Sir Nigel||Rees, Peter (Dover & Deal)||Mr. John Cope and|
|Gow, Ian (Eastbourne)||Renton, Rt Hon Sir D. (Hunts)||Mr. Nigel Lawson.|
|Gray, Hamish||Shaw, Giles (Pudsey)|
|Archer, Peter||Doig, Peter||Jones, Barry (East Flint)|
|Armstrong, Ernest||Dormand, J. D.||Jones, Dan (Burnley)|
|Ashton, Joe||Douglas-Mann, Bruce||Kaufman, Gerald|
|Atkinson, Norman||Dunn, James A.||Kilroy-Silk, Robert|
|Barnett, Guy (Greenwich)||Edge, Geoff||Kinnock, Neil|
|Barnett, Rt Hon Joel (Heywood)||Ellis, John (Brigg & Scun)||Lamborn, Harry|
|Bates, Alf||Ellis, Tom (Wrexham)||Lamond, James|
|Benn, Rt Hon Anthony Wedgwood||Ennals, David||Lestor, Miss Joan (Eton & Slough)|
|Blenkinsop, Arthur||Evans, Ioan (Aberdare)||Lewis, Ron (Carlisle)|
|Boardman, H.||Evans, John (Newton)||Loyden, Eddie|
|Booth, Albert||Ewing, Harry (Stirling)||Lyons, Edward (Bradford W)|
|Brown, Hugh D. (Provan)||Fletcher, Ted (Darlington)||Mackenzie, Gregor|
|Brown, Ronald (Hackney S)||George, Bruce||McMillan, Tom (Glasgow C)|
|Callaghan, Jim (Middleton & P)||Gilbert, Dr. John||McNamara, Kevin|
|Campbell, Ian||Ginsburg, David||Madden, Max|
|Canavan, Dennis||Golding, John||Magee, Bryan|
|Carmichael, Neil||Gould, Bryan||Mahon, Simon|
|Carter-Jones, Lewis||Gourlay, Harry||Marks, Kenneth|
|Cartwright, John||Grant, George (Morpeth)||Maynard, Miss Joan|
|Cocks, Michael (Bristol S)||Grant, John (Islington C)||Millan, Bruce|
|Cohen, Stanley||Hardy, Peter||Miller, Dr M. S. (E Kilbride)|
|Coleman, Donald||Harper, Joseph||Miller, Mrs Millie (Ilford N)|
|Conlan, Bernard||Harrison, Walter (Wakefield)||Mitchell, R. C. (Soton, Itchen)|
|Corbett, Robin||Hatton, Frank||Morris, Charles R. (Openshaw)|
|Cox, Thomas (Tooting)||Hayman, Mrs Helene||Murray, Rt Hon Ronald King|
|Craigen, J. M. (Maryhill)||Heffer, Eric S.||Newens, Stanley|
|Crawshaw, Richard||Horam, John||Noble, Mike|
|Cronin, John||Hoyle, Doug (Nelson)||Oakes, Gordon|
|Crosland, Rt Hon Anthony||Huckfield, Les||Ogden, Eric|
|Cryer, Bob||Hughes, Rt Hon C. (Anglesey)||O'Halloran, Michael|
|Cunningham, G. (Islington S)||Hughes, Mark (Durham)||O'Malley, Rt Hon Brian|
|Cunningham, Dr J. (Whiteh)||Hughes, Robert (Aberdeen N)||Ovenden, John|
|Dalyell, Tam||Hughes, Roy (Newport)||Park, George|
|Davidson, Arthur||Irving, Rt Hon S. (Dartford)||Parry, Robert|
|Davies, Ifor (Gower)||Jackson, Miss Margaret (Lincoln)||Peart, Rt Hon Fred|
|Dean, Joseph (Leeds West)||Janner, Greville||Prescott, John|
|de Freitas, Rt Hon Sir Geoffrey||Johnson, Walter (Derby S)||Roberts, Albert (Normanton)|
|Dempsey, James||Jones, Alec (Rhondda)||Robertson, John (Paisley)|
|Roderick, Caerwyn||Stewart, Rt Hon M. (Fulham)||Wellbeloved, James|
|Rodgers, George (Chorley)||Stoddart, David||White, Frank R. (Bury)|
|Rooker, J. W.||Stott, Roger||White, James (Pollok)|
|Roper, John||Taylor, Mrs Ann (Bolton W)||Whitlock, William|
|Rose, Paul B.||Tinn, James||Wilson, William (Coventry SE)|
|Ryman, John||Tomlinson, John||Wise, Mrs Audrey|
|Sheldon, Robert (Ashton-u-Lyne)||Urwin, T. W.||Woof, Robert|
|Silkin, Rt Hon John (Deptford)||Wainwright, Edwin (Dearne V)||Young, David (Bolton E)|
|Sillars, James||Walker, Harold (Doncaster)|
|Small, William||Walker, Terry (Kingswood)||TELLERS FOR THE NOES|
|Spearing, Nigel||Ward, Michael||Miss Betty Boothroy and|
|Spriggs, Leslie||Watkins, David||Mr. James Hamiton|
|Stallard, A. W.||Weetch, Ken|
§ Question according negatived.1349
§ Mr. Newton
I beg to move Amendment No. 49, in page 18, line 37, at end insert:'(c) after paragraph (a) of subsection (1) there shall be inserted the following paragraph—(aa) in the case of a claimant who is a widow, to a deduction from the income tax with which she is chargeable equal to the deduction specified in subsection (1)(a) of this section"'.
§ The Chairman
With this we may discuss Amendment No. 62, in page 18, line 37, at end insert:'(c) after paragraph (a) of subsection (1) there shall be inserted the following paragraph:—(aa) in the case of a claimant who is a widow and an employed earner, to a deduction from the income tax with which she is chargeable equal to income tax at the standard rate on £815,"'.
§ Mr. Newton
Both of these amendments refer to the position of widows under the tax system. They are a pair of amendments which in some senses go together with an amendment which I moved earlier in relation to the investment income surcharge and, in a way, with an amendment yet to come relating to the position of single women with dependent relatives, among others.
As I indicated in my remarks on the earlier amendment on the investment income surcharge, this series of amendments is an attempt to probe the Government's thinking and to enable some discussion to take place on the position of single women, divorced women and widows within our tax system and, to a lesser extent, within the social security system—although we cannot debate that system tonight.
One of these amendments is an expensive option for helping widows, and the other is a rather cheaper option. They are part of an operation which we hope will enable further discussion and thought to be given to this problem.
As I also indicated earlier, although the amendments refer only to widows we have in mind also other problems, particularly those of divorced and separated women, although they already have a certain degree of special treatment under the tax system, as the Minister of State indicated earlier.
1350 Perhaps I might at once acknowledge that underlying this problem of widows is a problem which covers the whole tax system. That is the sheer weight of taxation and tax rates and the inadequacy of the personal allowances, which relate in that sense to our debates on indexation. Many of these problems would disappear if we did not have the very high rate of income tax starting at very low levels. The fact that on the whole over the last few years, and especially under the present Government, we have had rising rates of income tax combined with falling real thresholds of income tax, has made all these problems steadily worse. In that sense all the debates we have had this evening ultimately tie together, and very much along the lines that my hon. Friend the Member for Blaby (Mr. Lawson) has been elaborating.
Having said that, however, it is absolutely clear that we shall not get the Minister of State or any of his colleagues to agree to do anything particularly useful or dramatic as regards tax thresholds or rates at present. Though we might regret that, considering the situation in which the Government have landed themselves after 18 months it is very difficult to argue as strongly as we would like that they should cut taxation to the extent necessary to deal with some of these tax problems. That being said, we find ourselves trying to deal with the difficulties which arise for particular groups in our society given the situation that exists. That is the basic background to the amendments.
As regards widows, and indeed, other single-parent families—in cases where there are children—the Government have acted to help, very much along the lines that we urged in amendments last year. We welcome this.
The Government have acted to help in another part of the clause with the increased additional personal allowance for children. We can argue on another occasion—there will almost certainly be an argument—whether what has been done is adequate, whether it should go further and what might be done in the future. I do not want to launch on that argument at present, but it may be that 1351 my hon. Friends will have something to say about that shortly. I want to concentrate on the fact that although something has been done to help widows and single-parent families where there are children, nothing further has been done to help widows who do not have dependent children. This group have their own particular and distinct problems, especially perhaps where they are also widows who are in earning employment, that is, who are earning something in addition to their widows' pensions.
What cannot be denied is that there is a widespread sense of injustice and grievance among this group. During one of the election campaigns last year I was stopped in the street on a considerable number of occasions by widows who were in that position and were burning to tackle somebody—in this case a parliamentary candidate—about what they felt to be the injustice of their treatment. Whether or not that sense of grievance is justified, it exists, and it should be noted by Parliament.
I have no doubt that the Minister will have two basic points to make in reply. The first will be that widows' pensions, like other pensions, are taxable, and that he can see no good reason why they should be treated differently from other pensions and not remain taxable. Secondly, he will observe that widows are in a sense single people, and that they are treated by the tax system straightforwardly as single people. They attract the single person's allowance under the tax system. He will argue that their treatment is on all fours with that of other taxpayers, and that there is nothing much for us to worry about.
I have already indicated part of my answer, which is that the sense of grievance exists on a scale greater than that of other taxpayers who are single or who are pensioners, even though they have their own worries about the tax system. Although it is clearly true that in a literal sense a widow is a single person, it is not true in a sense that takes account of the social realities of the situation in which she finds herself. She is probably in a house left to her by her husband, or jointly owned, which is larger than she would have acquired if she had 1352 always been single. She will have become used to a pattern of life which has more to do with her former married state than her widowed state.
These may not be wholly rational considerations. In a beautifully-organised, mechanical world she would perhaps be moved into a smaller house, and her pattern of life would be changed. But I take it that neither side of the Committee would argue for that. I do not think it a sensible way to approach the problem. We should take into account that a woman who has become single again after she has been married is not in exactly the same position as a woman who has never married. She will have special problems, a special pattern of life, special housing resulting from her former married state.
I have been talking about the social aspects. There are economic or incentive reasons for thinking that an answer by the Minister along the lines I have foreseen would be inadequate. Many widows who are earning, and who are often making a valuable contribution to the employment which they take, feel that it is barely worth while to work. Other wndows—I can think of some—are put off the idea of working altogether, however useful their contribution might be, because they feel that they would not see enough return from their work.
This partly arises from the fact that pensions are taxable, but also from the mechanics of the collection of tax through the PAYE system. It is not easy to see what to do about it. The effects are unfortunate. The Inland Revenue has no way of collecting income tax on a pension; although the pension is taxable, the thresholds are set more or less at the level to exempt anyone who has only the pension. There is no obvious way of collecting the tax on the pension as such.
I think that the Minister will agree when I say that when a widow goes to work her apparent marginal tax rate on the earnings from her employment seems to be excessively high and seems to start almost at once. What is happening is that the tax liability on the pension is being collected as if it were taxed on the earnings. I accept that this will still leave the widow at the end of the day in the same position as if she were a single 1353 person with the same total income, but no other single person would ever see his tax collected in relation to such a small part of his income.
Most of us in the Committee, and certainly those who have an ordinary PAYE arrangement, see our tax collected in relation to our total income. I will not say that it seems relatively small, but we see the tax that is collected in terms of our total income. However, the widow sees her tax in relation to only a small part of her income which happens to be the earned part.
Leaving aside any rational calculation, that creates the psychological reaction that it barely seems worth having any earnings because of the huge amount of the deduction which appears to take place. This is a mechanical problem, but we are not dealing with mechanical people. We are dealing with people who have psychological reaction and worries. Many of them feel that it is not worth their while working, given the net advantage of their earned income. It would sometimes be difficult to argue that they are not right.
All I have done is to sketch the background to the problem. I do not want to go into a lot of statistical detail about certain cases. If we want to do anything about the problem—I hope that Ministers will share my desire to see that something is done if at all possible—there are four lines along which we can proceed. First, we could use tax thresholds. That would at least assist the problem. We already know that from experience. We have already referred to that matter in another debate and I will not press the point. For my part I do not see it as a practical solution.
The second line is that which the widows' organisations have pressed for—namely, the exemption of the widows' pension from tax. I am in sympathy with the case that is advanced for not proceeding further along the lines of exempting social security benefits from taxation. The case advanced by my right hon. Friend the Member for Crosby (Mr. Page) regarding widows' pensions is obviously very special. That would mean taking the course of exempting all social security payments from tax, by exempting old-age pensions as well as widows' pensions, 1354 and putting them in line with unemployment pay and sickness benefit. I do not think that it would be easy to justify singling out widows' pensions for exemption.
I have general support for the tax credit system. I believe that it is generally more sensible to adopt the approach of making all social security benefits subject to tax so that we can move towards a rational system of bringing the social security system and the taxation system together.
I accept that to exempt the widows' pension from tax would not be a very satisfactory answer to the problem when the wider considerations are taken into account. I hope that the Minister will accept that I am being as frank as I can about that.
The third possibility is to find a way of altering the administration of the tax system to avoid the whole of the tax appearing to fall on a small part of the earnings. It would be helpful to find some way of collecting tax so that it appeared to fall on the whole rather than on part of the income, but it is difficult to see how precisely that could be done. It would certainly be less convenient for the Inland Revenue. It might change the psychology of the situation and would be a much less convenient way of paying tax for the people who are affected. It would mean their paying tax in a separate, and probably an annual, form with an assessment having to be made by the Inland Revenue.
The fourth possible line of approach is to give widows some additional personal allowance under the tax system and to try to raise the tax threshold for them over and above what has already been done in the clause to help those with children. I am talking primarily about those who do not have dependent children.
I come to the two amendments. Amendment No. 49 would give the widow the full married allowance. No. 62 is my minimum option. It would give a widow who is earning an additional tax allowance equal to half the difference between the single allowance and the married allowance. In other words, it would put the earning widow into a middle situation between the single person and the married person.
1355 Clearly those two amendments are at the opposite ends of the scale. One would put widows in the position of married couples with a full married couple's tax allowance regardless of whether those widows were earning. That would be an expensive operation. A recent parliamentary answer told us that the cost of the proposal would be about £40 million.
Amendment No. 62 would be more restricted. It would give half the difference between the single and the married allowance to widows in employment and would cost a great deal less. It certainly would cost a good deal less than £18 million, although I have not an exact figure.
If I were forced to choose, I think I should choose Amendment No. 62 related to widows in employment, which is where the main incentive arises. I hope that the Minister will be prepared to accord the proposal a favourable response. The amendments present a range of possibilities along the lines of giving widows an additional personal allowance. I look forward to hearing a constructive reply by the Minister.
§ 10.45 p.m.
§ Mr. Nicholas Winterton
I wish to direct my remarks to Amendment No. 62. If the Government accept the amendment, they will have the wholehearted consent of all hon. Members. Although it will lead to additional Government expenditure, if it can be so described, I am sure it will be welcomed in Parliament and in the country.
I know that Members of Parliament have received hundreds of letters from widows who have very strong feelings on this matter. These are working widows. Is it right that we should penalise the working widows for wanting to look after themselves and to maintain the standard of living to which they have become accustomed? They are the main and only bread winners. Their husbands are no longer with them. They are alone. I believe that the Committee owes them recognition.
My hon. Friend the Member for Braintree (Mr. Newton), in moving this amendment in a splendid fashion, indicated that the annual cost to the Government would be less than £18 million. 1356 Although I am conscious of the need for restraint in public expenditure, I believe that this sum would be well spent.
The Government claim to be concerned about people and to have a social responsibility. I am convinced that there will be no brickbats from the Opposition. There will be only plaudits and praise from outside the House if the Government make this modest adjustment, which will assist a deserving section of the community.
Perhaps these people are suffering most at this time of superinflation, which—whether the Ministers on the Treasury Bench accept it or not—is to some extent the responsibility of the present Government. The Government will receive much support throughout the country if they meet this reasonable request.
How can widowed persons change their life style overnight? Why should they leave houses in which they have lived for many years and perhaps move away from areas in which they have their friends? That is the situation now faced by many widows.
Perhaps the Minister will ask why the Conservatives did not act when we were in power. I agree with the Minister. Why did not we act when we were in power? Many Members of the Conservative Party pressed the former Conservative Government to do something about this problem. However, that Government failed to do anything. The Government now have the opportunity of winning a few laurels. They have little enough now to offer the electorate. Here is a means by which the Government can improve their popularity, which has sunk to an all-time low. I hope that the Government will react to my plea.
§ Mr. Patrick Cormack (Staffordshire, South-West)
It would be churlish to begin without thanking the Government for what they sought to do for widows with children and for single-parent families. Those moves were in the right direction. We struggled to obtain a response from the Government and it would be discourteous not to acknowledge it. I do that gladly.
My hon. Friend the Member for Braintree (Mr. Newton) is to be congratulated on putting down the amendments and on moving them in a moderate way. I 1357 accept what he said. I agree that of the two amendments the second is much the more feasible and practicable.
Perhaps the Minister will be unable to give us satisfaction this evening. It would be surprising, although pleasing, if he were able to do so. However, I ask him at least to consider the matter in consultation with the Chancellor and the other Treasury Ministers and to see whether they can find the necessary £18 million from elsewhere, so that this extremely deserving section of the population can be given a little more self-confidence. We all need a little more self-confidence.
Nobody is more deserving than the widows. No hon. Member who has been in the House for even a short time could be unaware of the real problems that face widows. The fact that those problems are particularly acute from women with children does not mean that they are absent from women without children. The real problem is high rates of tax and low thresholds.
What struck me as entirely apposite were the remarks made by my hon. Friend the Member for Braintree about the sense of grievance felt by widows. They feel that, having suffered real personal tragedy, often extremely suddenly, and having been plunged into a new way of life literally overnight, they are not helped as they should be by society.
I have been associated in some degree with the National Association of Widows. The Minister of State knows that, because he kindly received a deputation from that body a couple of months ago. Whether he is able to give us satisfaction tonight I do not know, but I am sure that he will agree about the sincerity of those women, the genuine difficulties they face and the real efforts they are making to draw attention in a moderate and reasonable way to their problems. They are not putting a pistol to the heads of the Government or politicians and saying, "There is only one way of helping us." They are asking us to look at the different ways which can be found to help them and to try to come up with a solution.
Perfection is rarely to be found in a back bencher's amendment, but I suggest that my hon. Friend the Member for Braintree has made a noble effort and that his solution in Amendment No. 62 1358 is feasible and realistic, even at a time of economic stringency when the Government are, to my mind, squandering large sums of public money on such unnecessary items as food subsidies, which do not help widows as much as they should. I hope that between now and Report a serious search will be made for the money to be found and made available.
My hon. Friend the Member for Macclesfield (Mr. Winterton) talked about providing laurel wreaths for the Government. It is the first time that I have heard him cast himself in that rôle. The implication in his remarks was absolutely right. The Government would earn great gratitude from many people—there are over 2 million widows in this country—if they did something at this stage to ease their lot.
I endorse the remarks made by my hon. Friend the Member for Braintree. I underline what he told the Committee in such simple but graphic form and ask the Minister at least not to shut the door tonight.
§ Mr. Lawson
I congratulate my hon. Friend the Member for Braintree (Mr. Newton) on the way that he moved the amendment on this important issue and in particular on the formulation of Amendment No. 62. I do not expect the Minister of State to accept it straight away, but I am aware of what happened a year ago when my hon. Friend moved an amendment on the age allowance which at that time was rejected by the Government. They said that it was impossible, that they could not possibly do it, and so on. We now find that almost identically the same amendment, which I am delighted the Government have taken on board, has miraculously appeared in this year's Finance Bill. I hope that my hon. Friend will have the same luck with this amendment, in that, even though it will probably be rejected this time, because the Government are a bit slow, it will eventually appear in the Finance (No. 3) Bill, which cannot be long delayed.
§ Mr. Lawson
This is a serious matter, because of the categories of people involved. Members of Parliament get many letters from different categories of people. There is no doubt that at present the position of widows stands out as one 1359 where there is a unique and justified sense of grievance for the reasons given by my hon. Friend the Member for Braintree. It has been made harsher now—I hope that the Minister will take this into account—by the fact that in the Budget the tax rate has been increased from 33 per cent. to 35 per cent. It means that the widow who is earning will have 35 per cent. of her income taken away, and that is too much.
When calculations are made of the cost of this relief for those widows who are desperately trying to keep up a standard—not an exaggerated standard, nothing which should cause envious eyes to look harshly at them—and when they want to work and earn a little bit more and do a little bit better, so much is taken away in taxation that there is a severe disincentive and a sense of injustice, over and above the sense of grievance they already feel at finding themselves in widowhood.
If the amendment were accepted there would be more widows working and wishing to earn. The Revenue would be getting its taxation from this increased level of earnings and the net cost to the Exchequer would be considerably less—one cannot say how much less—than the gross cost. Present with us in the Chamber is the hon. Member for Islington, South and Finsbury (Mr. Cunningham) who played such an important part in the changing of the earnings rule for pensioners. Arguments similar to those advanced tonight were put forward on that occasion, and it would be as well to bear that fact in mind.
I therefore urge the Minister to give a favourable response to this amendment which was moved so ably by my hon. Friend the Member for Braintree.
§ Mr. Ryman
I shall seek, in a very brief speech, to urge the Government to view this amendment extremely sympathetically and to implement it if at all possible. Enough has already been said of the terrible plight in which widows find themselves. To that I would simply add a further aspect which has not yet been mentioned. In view of the profound grief of widowhood and the many financial pressures experienced by newly bereaved widows, there is no doubt that 1360 it is a very good thing if they are able to go out to work. Unless a widow has young children or other family commitments which physically prevent her from going out to work, it is some consolation, albeit a small one, if she can occupy her time by working rather than by suffering more deeply, as would be the case, in a lonely word, alone without work. Therefore, from every point of view it is humane and sensible to encourage widows to work, not only for their health and well-being, but for the health and wellbeing of the community.
I am not sure whether it is correct that the cost of implementing this amendment is £18 million, but if it is, it is but a flea-bite. The Government should be able to find that sort of money from some other source. I suggest to the sponsors of the amendment that the wording is not broad enough. It should include widows who are both employed earners and self-employed earners. Large numbers of widows whom I know in the north-east of England seek to supplement their inadequate widows' pension by taking on very badly paid and humble self-employment of various kinds. If words such as I have mentioned were inserted in the amendment, it would be wider.
It is impossible to state forcibly enough the suffering of widows. The Government should act in this matter. The £18 million involved could easily be found from other sources.
§ 11.0 p.m.
§ Mr. Newton
I am grateful for the support of the hon. Member for Blyth (Mr. Ryman). Can the Minister tell us more about the cost? I said that it must be less than £18 million. I base that on an answer by the Minister of State to my right hon. and learned Friend the Member for Surrey, East (Sir G. Howe) about the cost of increasing the personal income tax allowance for widows from the single person's allowance of £675, to £800 and £955 respectively. I am more interested in the former figure, because it is roughly the same as in my Amendment No. 62. The Minister said that the estimate for 1975–76 would be £18 million. That was for all widows, and my amendment relates only to employed earners, so the cost must be lower. The estimate of £18 million, therefore, not only not low; 1361 it is probably significantly high. Perhaps the Minister will give us an estimate.
§ Mr. Sheldon
As my hon. Friend the Member for Blyth (Mr. Ryman) said, there is one omission in Amendment No. 62—that of the self-employed. There are some technical defects in the amendments, but I shall not pursue them. It is not worth while for any back bencher to spend time getting the technicalities absolutely right. So long as the intention is clear, that is what matters. But one important defect arises from the use in Amendment No. 49 of the wordsa deduction from the income tax with which she is chargeable",equal to that of a married man. I take it that the deduction with which the hon. Member for Braintree (Mr. Newton) is concerned is that which would make the personal allowance of a widow equal to that of a married man. In fact, the words would give a tax relief of £955, or three times the amount that I am sure he has in mind. We should know what we are talking about, in case someone should want these figures in a subsequent debate.
On the basis of what I am sure the hon. Member intends—there is a natural reluctance to give these estimates, because they must be rather sketchy—a rough estimate is that Amendment No. 49 would cost about £40 million and Amendment No. 62, £13 million. The present position is that a widow without dependents receives a single person's allowance, which is the same as for all other single, widowed or divorced people living on their own. The single allowance is increased from £625 to £675 under Clause 28. This is just over 70 per cent. of the allowance for the married man. If this amendment were carried it would mean that the widow would obtain a higher allowance than that of the widower.
I am always delighted to receive representations, whether from the hon. Member for Staffordshire, South-West (Mr. Cormack), who is very assiduous in these matters, or from other hon. Gentlemen, but I must try to correct some of the impressions given that this is a problem just for the one sex. It is a problem for both sexes. It makes for an all-round approach and a better understanding of our problems if we consider the emotional 1362 anxieties, the grief, the worry and distress of the widower, as well as the widow. The adjustment process is clearly applicable to both.
The hon. Member for Braintree talked about the tax deductions under the PAYE system. As he rightly says, this is a mechanical problem. None the less it is a very difficult one. The difficulty arises, as he rightly points out, in that the present system is the only simple way to collect tax, but none the less the widow, seeing her pay-slip and comparing it with that of someone working side by side with her, sees that she is having to pay tax at a higher level than the other person, and feels a sense of grievance and injustice, in the way that the hon. Gentleman described.
Following a number of representations that have been made and thanks to the work of the representative organisations, to which I pay tribute, I think the reason for this apparent injustice is getting across; and anything that I can do to help I would wish to do, because this is a problem that is likely to remain with us. It may be that at some future date PAYE will be able to operate on the social security benefit itself, but that time is not yet. This would meet the mechanical points to which the hon. Gentleman refers, and it would deal with a number of other problems that we find in this and related fields.
The main burden of the amendment concerned the expense of running the home. This applies to men and women whose marriages end in divorce and separation just as much as to cases involving the decease of the partner of the marriage. We are more aware of these cases than the ordinary cross-section of the community, because we meet so many of them in our surgeries and in our constituency relationships. Despite the sympathy that naturally, obviously and necessarily goes out in these cases, they are very hard to relate to actual financial arrangements. Most of the problems are not capable of solution by financial arrangements, and the taxation system is one of the less successful ways of dealing with these questions of grief and the necessary sympathy involved.
We fix liability to tax according to very simple and very few criteria, which cannot be adjusted to take account of the many different circumstances normally required. 1363 We fix it in accordance with the simple criteria of income and family commitments. These are very limited.
I was pleased to receive from hon. Members who spoke in the debate some acknowledgment of what we did in terms of the additional personal allowance for the single parent. The £280 is a substantial additional personal allowance, and to it must be added the children's allowance.
In 1960, the married allowance was 60 per cent. higher than the single allowance. By 1973 it had declined to a point where it was only 30 per cent. higher than the single allowance. In the current year we have restored the position a little by making the married allowance 41 per cent. higher than the single allowance.
The most important problem that we see for widows is the comparison with the working couple, where the wife's earned income allowance is added to the married man's allowance. It was introduced as far back as 1920 in order to encourage women to go out to work, or to remain at work. Some people consider the present system generous, even over-generous, in what it does, but in the PAYE system there is an operational need to have the same rate of allowance for all women at work, whether they are married or single. This has the incidental advantage of avoiding awkward questions of confidentiality about a woman's marital status.
The main issue is one to which we have referred in previous debates. It is that when we try to obtain assistance for those sections of the community in special need—and widows are in very great need because of the feelings of emotion naturally aroused—we find that increased allowances mean that most goes to those who have most. Once an allowance is made, those who have the most earnings or the highest income obtain the greatest benefit. The advantage of the social security system is that the benefit can go to those who most need it instead of to those who have most.
We have to ask ourselves what we are trying to achieve—
§ Mr. George Cunningham
The difference to which my hon. Friend has drawn attention is one which is not inherent in a taxation system, as against the social security system; it is due only to the fact 1364 that we make reductions in the amount of taxable income instead of reductions in the amount of tax payable. If we were starting from scratch, we could and probably would have a system based on the second principle rather than the first, which would be more equitable.
§ 11.15 p.m.
§ Mr. Sheldon
I may be tempted to follow my hon. Friend's argument in a moment. The problem arises in trying to decide what we are attempting to achieve. I suggest that what we are after is to maximise the aid to those widows who are in greatest need. The difficulty is that, ideally these debates should take place on matters concerning social security. It so happens that in this place Finance Bill debates tend to take place more frequently than do social security debates. Many hon. Members anxious to raise the point are forced to use the forum of the Finance Bill debate to try to achieve their aims. The difficulty we find ourselves in is that the social security system is far superior as a system of directing money to those in need. We have the widow's allowance, the widow's supplementary allowance, the widow's pension and the widowed mother's allowance. I shall be surprised if, over the years, we do not magnify these or make them even more precise instruments.
By comparison, income tax allowances provide the most crude method. Those who have the most receive the most. If we were to proceed in this way, refining the tax system to provide assistance to those in need, we would end up by having two sets of social security provisions. We would have the nonsense of a social security system via income tax and a social security system via the Secretary of State for Social Services. The second would be superior. The first would be an abomination and a nonsense.
This is what happens when we spend our time importing social security arguments into the Finance Bill rather than making use of the social security system. I do not believe that there is room for these two systems of social security—one crude and one complex, one involved and the other refined. Although we have to do much more for the widows I do not think it will be best done in the Finance Bill, and I ask my right hon. 1365 and hon. Friends not to accept the amendment.
§ Mr. David Howell
The Committee will be grateful to my hon. Friend the Member for Braintree (Mr. Newton) for moving the amendment. We are particularly grateful to him for bringing forward Amendment No. 62, which has provided the background for a useful debate on this difficult area. It has brought forth a reply from the Minister which might be described as sympathetic, although that may be inaccurate, because it is hard to tell, when analysing the speeches of Treasury Ministers, whether they are a sign of better things to come or simply represent the Treasury digging itself in.
The Minister gave us, for the second time tonight, some excellent reasons why we should move as fast as possible towards a tax credit system and away from the mad merry-go-round of give and take which is causing so much worry and concern. I do not agree with his eulogy of the benefits of the social security system in helping to iron out the anomalies and injustices in our present distribution of income, the prosperity of the country and the good things of life. Even if I did, his conclusion is that the faster we move to a tax credit system the better.
The basic problem is caused by low and fixed thresholds, against very high personal taxation. We come up against the problem again and again, and before we end the debate it is worth putting on record the most telling figures circulated by Age Concern in a letter to the Chancellor. They remind us that the full flat rate pension income is now £603.20 a year. We are glad that the single person allowance has now been raised to £675 a year, which leaves room for about £1.38 a week to be earned before a widow in this position finds herself liable for tax. If there is a further increase in pension in December and no further adjustment in the single person allowance, that figure will be even smaller. In fact, it will be only a few pounds.
That would not be so bad if it were not for the fact that the starting point is now 35 per cent. This means that a widow with literally her first few pounds coming in over and above the flat rate pension incurs a 35 per cent. tax rate. I cannot believe that a marginal leap of 1366 such an enormous size exists anywhere else. I have not examined the European systems closely, but I very much doubt it exists there.
It is an incredible thought that if one earns more than the £12 or £13 a week that comes in on the flat-rate pension, one third is immediately returned to the Inland Revenue. It is staggering. It is no wonder that when they come to our surgeries widows find it very hard to comprehend that the system is placing this penalty on them. The higher the standard rate, which has moved from 33 per cent. to 35 per cent., the more bitterly they feel this.
One realises the problems here set out by my hon. Friend the Member for Braintree and very reasonably by the Minister of State. While one would not expect an immediate yielding this evening, there is, nevertheless, a case for considering the whole matter sympathetically, which we shall expect to see done in due course.
The question of the cost has been raised. The Minister of State offers a figure of £13 million. Of course, it is easy for Oppositions to say, as each £10 million or £15 million comes up, that that is a very small sum. But heaven knows, it is small enough compared with the £9 billion borrowing requirement under the present Government. It is small, too, when compared with other expenditure in the public sector. One wonders how far that £13 million will go towards paying the next colossal public sector wage increase. I expect that it will be lost in the mad merry-go-round of higher and higher public sector wage settlements being financed by more and more Government spending. Against that, this £13 million is really a pathetic sum.
Despite that, however, we realise the importance of preserving the revenue. In spite of the fact that we have proposed other means by which the Government could raise revenue more effectively than they are doing under other clauses—for instance, VAT—we do not expect the matter to be pressed tonight. However, this is a sad little sum of money that is being withheld by the Government, compared with the enormous sums they are spending daily, even hourly, on other priorities which many feel are not so compelling or demanding.
1367 In that spirit, therefore, we set the amendment before the Committee. I shall not advise my hon. Friends to press it to a Division, although it is up to them to decide what they wish to do. This is a matter which in due course will deserve a very high priority indeed.
§ Mr. Newton
I should like to make some brief comments. First, I thank the Minister once again for a thoughtful reply to my amendments—a reply which gives us at least some sense of hope for the future.
Secondly, I want to comment on the Minister's approach to the subject. I agree that the social security system is a more flexible instrument for channelling help to those in particular need. It does not always work as well as it should, but it is clearly more capable of doing it. I quarrel with the Minister on the question whether he is right to think that getting help to those in need is the only consideration. I suggest to him that creating a sense of justice among those who are taxed is also an important consideration to bear in mind, and that our present system manifestly fails to do that.
With the reservation that we may well wish to return to this subject at a later stage, I beg to ask leave to withdraw the amendment.
§ Amendment, by leave, withdrawn.
§ To report Progress and ask leave to sit again.—[Mr Joel Barnett.]
§ Committee report Progress; to sit again tomorrow.