TAX THRESHOLD (Hansard, 2 April 1976)

§ Mr. Tony Durant (Reading, North)

I beg to move, That this House is concerned at the financial state of single parent families, widows and the low paid, deplores the Government's procrastination over these under-privileged groups, and demands that the tax threshold should be raised to a point where cumulative benefits are not taxable and where there is, between the maximum cumulative benefits amount and the tax threshold, a space large enough to provide a sufficient incentive to take employment. I have the good fortune, unlike many hon. Members who draw No. 3 in the Ballot, to have some time to talk about this subject. I admit that I was almost caught out. Luckily, by keeping in touch with the House, I realised what was happening and was able to be here. Otherwise, my motion might have gone by default. That would have been a great pity, because this is probably the last opportunity before the Chancellor's Budget to talk about those groups who are hardest hit by taxation. I hope that my small contribution, even at this late stage, will cause the Chancellor to have another look at the position of these people, who are facing great difficulties. I am glad that the Financial Secretary is present to listen to the debate.

I want to talk about three particular groups this afternoon. There are, first, the single-parent families. This group includes those who are divorced, and widows. These parents have extreme difficulty in managing at present.

Then we come to the widows. I want to talk particularly about widows aged between 40 and pensionable age, who are still trying to make a living and a life for themselves after a sudden bereavement.

There are, finally, the low-paid who have sometimes a part-time job and sometimes a full-time job, but a low income.

I deal first with the single parents. This group faces a number of difficulties. First, many single parents have young children. Many have to decide whether to live on social security or take a job and try to make arrangements for the children to be looked after. That is clearly a pressure upon them. If the man or the woman concerned wishes to carve out a life for himself or herself, naturally the 1860 preference is to go out to work, but when single parents go out to work they find that the allowances that they receive are not as good as those received by a husband and wife who are both working, and they are left wth quite heavy taxation on a small income.

We have had a recent concession from the Chancellor of the Exchequer. There will be some relief for single-parent families on the question of the benefit for the first child and family allowance for the first child. That will be of some help to this group. However, that is not sufficient, because these people feel that they wish to make a life for themselves and to have the opportunity of creating a family and a group, and of beginning to live a normal life once again. Most of them find that because of the pressures upon them they have to live on social security, certainly during the period when the children are very young. Life gets easier when the children go to school, but single parents are then faced with school holidays and all the other pressures involved in that situation.

I come now to the widows. This is the group on which I wish to spend most of my speech, because it is the group whose cause I have been particularly pushing, both in Questions to the Chancellor of the Exchequer and in a recent delegation to the Minister. I want to talk particularly about those from roughly 35–40 up to pensionable age.

Widows have a number of problems similar to those of single-parent families. They wish to carve out a life for themselves. They do not want to be dependent on the State. They want the opportunity to work. However, having overcome the initial shock of the loss of a husband, out they go to work only to find that they are, perhaps, working alongside a woman who, very often, is taking home more money than they are.

The facts of the case are quite alarming. I should like to refer to a recent submission by the National Association of Widows. The Association cites the case of a widow aged 55 on full widow's pension and paying £10 a week rent for her accommodation. A rent of £10 a week is not very great. In the case of a widow who is receiving supplementary benefit, the pension she will get will be £13.30. She gets a supplementary benefit of £8.30, and if she is doing a small 1861 part-time job she earns, let us say, £4. That gives her a gross income of £25.60. Income tax on that sum is £1.40. That leaves her with £24.20 per week and a rent of £10, leaving her with some money in her pocket. If she goes further and decides to take a slightly better job, according to the figures that I have, she gets the same pension of £13.30. If she is then earning £20 a week—which, after all, is not the salary for a very high-powered job, although it is better than £4 a week—her gross income becomes £33.30. But her income tax then rises to £7, leaving her with a total of £26.30, which represents quite a small jump in her income, considering that the "other earnings" figure of £4 has now risen to £20. The money that she takes home is only about £2 more than what it would be if she had stayed on £4 a week.

There is something wrong with a system such as this. We must take that on board and realise that it has a psychological as well as a financial effect, because people will say "Is it worth it? Should I bother? Would it not be better to stay at home, go for more supplementary benefit, and manage? Here I am working hard, and the return is minimal."

The Chancellor of the Exchequer should look at this problem. I hope that he has already taken care of it and that my speech is a waste of time. That would satisfy me.

I have received letters from many widows about the psychological problem of not being able to earn sufficient money to make it worth while, because the tax is so high. Unlike pensioners, widows have often made no plans for widowhood. A woman is often unexpectedly left on her own, because her husband might, for example, be killed in a car crash, or suddenly be taken very ill. It is difficult to make provision for that situation, particularly because inflation has made insurance policies less attractive in recent years. One can put money into an insurance fund all one's life and find that the final sum has shrunk, through inflation. I am not making a party political point, because that has been happening ever since the war.

When we went to see the Minister we made another suggestion for tackling the problem. We submitted the idea of using the income relief for pensions scheme, so that widows would receive a certain sum 1862 of money before taxation. The existing scheme could be extended to widows. It would be a good way of helping this group of people, and the cost would not be very high.

On 8th March I asked the Chancellor of the Exchequer how much it would cost to extend the age allowance to widows between the ages of 40 and 65. He said that it would cost about £30 million, which is not a lot of money in terms of the national Budget. Many of the problems would disappear if the tax threshold were raised and people were able to keep more of their earnings. The Chancellor does have the problem of balancing the books. I appreciate that such a step would benefit people other than those about whom I am talking. I will shut up in a few minutes, to give the Minister an opportunity to reply.

The low-paid are another group of people who have problems. They have fairly menial jobs, and they are finding that it is better to draw social security benefits than to go to work. It is a national problem, which must be tackled, because most people want to do a job. Not many want to stay at home, although there is panic in the eyes of a very small minority when it it suggested that they find a job. The present tax system is a disincentive to work for the low-paid. If we raised the tax threshold and left more money in people's pockets, they would have an incentive to take a job and that would be more worth while for society.

The tax system needs re-examination. We are taxed too heavily. I have already told the House how, while driving on the motorway, I heard, on one of the pop radio programmes, an announcement that all the songwriters of the country, bar one, had left because of the tax system. That is not what I am here to talk about, but it is part of the problem. These people no longer keep their money, because it goes in taxation.

I believe that a shift from direct to indirect taxes would do a great deal for our society. It would encourage people to do better things with their money. I understand that it has happened in France and is part of the reason for the French success in getting their economy moving again.

I ask the Chancellor to look seriously at the question of the tax threshold and to give the low-paid, single parents and 1863 widows an opportunity to keep more of their earnings, so that they do not feel so dependent on the State. They want to be independent, to look after their own children, to start a new life and do the things they want to do, rather than constantly worry about where the money is coming from, spending their time trying to balance the books. Society has a responsibility to be interested in the problems of such people. Lowering the tax threshold would assist them. That is why I have moved the motion.

I hope that the Minister will give us reassuring words I hope that he will say "You need not have made that speech. The matter is all taken care of. The tax threshold is about to be raised. Wait until Tuesday." I have made my speech as part of the continuing pressure on a matter about which I feel very strongly, as does the National Association of Widows.

§ The Financial Secretary to the Treasury (Mr. Robert Sheldon)

The House knows the hon. Member for Reading, North (Mr. Durant) as one of the gratifyingly large number of hon. Members who are concerned about the problems of widows, among other problems. The all-party committee responsible for looking into the matter and drawing Ministers' attention to their needs has performed a valuable service.

In the Treasury we have a saying that matters are under consideration. We trot it out. It has a genuine meaning, but, perhaps because of the number of times we say it, it does not have the same impact as it would if it was heard for the first time.

As a result of the arduous efforts of the hon. Gentleman and other colleagues of mine, some of the problems have come to the fore a little more than they might have done. It is not easy to bring to the attention of Treasury Ministers wholly novel taxation matters, but we have been presented with an insight into the problems of widows, based on close research which I have been happy to see.

We all know that when the Chancellor of the Exchequer comes to prepare his Budget he receives a great many representations. Many of the representations are fairly repetitive by their very nature. 1864 However, those representing the widows have presented some new ideas which have been under investigation. It is difficult for me to go any further than that as I am speaking within only a few days of the Budget. I came to this debate directly from a meeting with my right hon. Friend the Chancellor, and I shall be returning to it.

The hon. Member for Reading, North suggests that the allowance that is given to those over 65 might be modified and brought into use for widows. That is a new suggestion. Obviously we can see that there are problems, and the hon. Gentleman recognises that they exist. The main problem is that the age allowance replaced an existing relief, whereas a suggestion of the sort that the hon. Gentleman makes would come as a completely new relief for widows. I have had responsibility for only certain aspects of assistance to widows since the main responsibility lies directly with the Department of Health and Social Security.

The hon. Gentleman said that in most cases widows were unable to make plans, and that any plans they had made were probably shattered and destroyed by the tragic loss they suffered. I accept that argument. I accept, too, the problem of making provision by means of insurance. I am grateful to the hon. Gentleman for putting the matter in the context of the distant as well as the recent past. Such provision cannot be made in any satisfactory measure owing to the level of inflation that we have suffered in recent years. Inflation produces even further problems of the sort that the hon. Gentleman has mentioned.

I do not think I can say very much more about that aspect of the hon. Gentleman's case other than that these are matters which the Chancellor has been considering for some time. The time of the meeting that I held with the hon. Gentleman and others was well arranged so that the information I received was fed into the discussion.

I now turn to the wider aspects of tax thresholds. The poverty trap is a direct consequence of two major factors—namely, the increase in benefits that are paid and the lowering of tax thresholds because of demands upon the tax system to raise sufficient funds to retain the public sector borrowing requirement at levels that are not grossly excessive. It 1865 is vital that they should not become grossly excessive.

Therefore, we have had to raise levels of taxation. We have had to raise them to levels that are higher than anyone would wish. The increasing of benefits and the reduction of tax thresholds both began a long time ago, but these two factors have in recent times magnified the problems of those with incomes around the initial levels of taxation.

The hon. Gentleman rightly looks to seeing low-paid workers permitted to keep more of the income they earn. The difficulty is that assuming, as I believe, for the reasons I have described, that one needs to keep levels of tax approximately the same, the intention which the hon. Gentleman expressed so clearly can only be achieved either by reintroducing reduced rate bands, so that those coming into tax come in at a level lower than 35 per cent. plus the national insurance contribution, or by keeping the rates of tax lower than they are.

Here one faces the biggest problem of all. Reduced rate bands mean that the income forgone has to be made good by charging to tax other members of the community. That means that rates of tax would increase even further and people would come into tax at lower levels. It is easier to explain these matters on a graph, but I am sure that the hon. Member, with his understanding of the subject, will accept that when a reduced rate band is created, if the amount of tax is to be kept constant, it has to start at a lower level. That would not only create difficulties for those who would receive even less than they are paid now but would have the further 1866 disadvantage of requiring much larger numbers of civil servants to operate the more complicated tax system that would result.

We are therefore left as a means of varying the position with the rate of tax and the threshold. As long as benefits continue to overlap, or even to approach the threshold of taxation, this means that as one starts to pay tax, so one starts to forgo benefits. Assuming that one starts to pay tax at 35 per cent. plus more than 5 per cent. for the national insurance contribution—a total rate of over 40 per cent.—and that at the same time one forgoes benefits, sometimes at a high level, one is faced with the poverty trap. The only solution is to reduce the amount of direct taxation. That is the solution that the hon. Member advanced, by implication, when he talked about the need to move more and more from direct to indirect taxation.

That suggestion obviously has its attractions. Over the past few years there has been a move under both Governments towards more direct than indirect taxation. That was not always so. In the 1960s the movement was the other way round. One of our problems in recent years, however, has been inflation, in the face of which Governments have tried to increase as little as they could the amount of indirect taxation which directly contributes to the level of inflation. That attempt was made by several Governments in the past.

One can argue that the present pay policy presents many difficulties——