HC Deb 14 July 1976 vol 915 cc775-824

9.45 p.m.

Mr. Robert Sheldon

I beg to move Amendment No. 12, in page 16, line 34, leave out 'In section 8(1A) and (1B) of the Taxes Act' and insert: 'In section 8 of the Taxes Act (personal reliefs)—

  1. (a) in subsection (1)(a) (married) for "£955" there shall be substituted "£1,085";
  2. (b) in subsections (1)(b) (single) and (2) (wife's earned income relief) for "£675" there shall be substituted "£735";
  3. (c) in subsections (1A) and (1B)'.

Mr. Deputy Speaker

With this we may take the following amendments:

No. 14, in line 43, at end insert: '(3) In section 10(5) of that Act (restriction of relief where child has income exceeding £115) for "£115" there shall be substituted "£350" and at the end of the proviso there shall be inserted the words" and that in the case of a child who—

  1. (a) is under the age of eighteen at the end of the year of assessment and is unmarried throughout that year; and
  2. (b) either has not earned income or has earned income not exceeding £235,
this subsection shall have effect with the substitution for the words "income exceeding £350" of the words "investment income (that is to say, income other than earned income) exceeding £115"— (4) In section 14(2) and (3) of that Act (additional relief for widows and others in respect of children) for "£280" there shall be substituted "£350". (5) In section 14(2)(a) of that Act (relief available only for claimant entitled to relief under section 10 in respect of a child resident with him) after the words "resident with him" there shall be inserted the words "or would be so entitled apart from subsection (5) of that section".'.

Amendment (c) to the proposed Amendment No. 14, in subsection (3), leave out from '£350' to end of subsection.

Amendment (a) to the proposed Amendment No. 14, in subsection (3)(a), leave out eighteen 'and insert sixteen'.

Amendment (b) to the proposed 'Amendment No. 14, in subsection (3)(a), leave out 'and is unmarried throughout the year'.

Amendment No. 16, in page 16, line 43, at end insert: '(3) In section 10 of that Act (Children) for any reference to £115 there shall be substituted a reference to £300'.

Government Amendment No. 195.

Amendment No. 263, in line 44, at end insert: '(3) In section 8 of the Taxes Act (personal relief)—

  1. (a) for the reference in subsection (1)(a) (married) to £955 there shall be substituted a reference to £1,275; and
  2. (b) for the references in subsection (1)(b) (single) and (2) (wife's earned income) to £675 there shall be substituted references to £900'.

Mr. Dafydd Wigley (Caernarvon)

On a point of order, Mr. Deputy Speaker. Earlier in the day, Mr. Speaker indicated that a separate vote would be allowed on Amendment No. 263. Will you confirm that that is the case, and that a vote can be taken, irrespective of whether Government Amendment No. 12 is agreed to?

Mr. Deputy Speaker

The best answer will be to see how we get on with the Government amendment. We shall come to Amendment No. 263 in due course.

Mr. Sheldon

This amendment implements the main part of the conditional reliefs set out in the Budget Statement by the Chancellor. Here we are using the tax system for the first time to increase take-home pay in return for cooperation on the pay agreement. The agreement has been accepted very widely, even though somewhat reluctantly by right hon. and hon. Members opposite. They have endorsed it, querulously at first, then doubtfully, and finally grudgingly. It has also been endorsed in the TUC by 20:1. This was the final endorsement of the agreement that led to the conditional reliefs being implemented.

We are fulfilling our part of the bargain in these amendements. We are giving reliefs amounting to £920 million for a full year, or a total of £1,300 million when one includes the child tax allowances and the age allowances, which were the unconditional parts of the package.

Work has already begun in tax offices to implement these new reliefs. A start was made after the Ways and Means Resolution was passed on 7th July, and most people will receive the benefit in their pay packets on the first pay day after 26th July. Some people whose pay codes need revision will be in a situation in which the arrangements will take longer, and they will receive the benefit in their first pay packets after 16th August. All these benefits will be backdated to 6th April and they will represent a very welcome tax bonus, the size of which will depend on family circumstances and the level of pay.

I shall give the House a broad guide to how much these benefits will be. A married man on average earnings will have a tax figure of £15 less than usual, and a single person will have a figure of about £7 less. Those who are just above the tax threshold may get a rebate, and those with children are already receiving the benefit of the lower tax deduction.

Some hon. Members may talk about the removal of powers from the House of Commons. A month or two ago a number of Conservatives were saying this. Today we are showing what these powers mean, because we are debating the conditional relief in the House.

Mr. Lawson


Mr. Sheldon

If the hon. Member feels that way he can vote against them if he wishes. It will be interesting to see whether he does vote against these reliefs. [Interruption.] I know that the hon. Member is rather bad-tempered. He always is on these matters. This is understandable, because there is a very wide division between the right hon. and learned Member for Surrey, East (Sir G. Howe)—who has been extremely grudging in his welcome—the former Leader of the Opposition, the right hon. Member for Sidcup (Mr. Heath)—who has shown great enthusiasm—and the Shadow Employment Secretary, the right hon. Member for Lowestoft (Mr. Prior). I understand the Opposition's problem and I draw attention to it because it is likely to result in a certain amount of irritability on their side of the House.

The child income limit above which relief is restricted has been increased from £115 to £350 in the case of children who have reached the age of 18 or are married. For younger children, the amendment raises the limit of earned income to £350, but retains £115 as the limit on any income that is ranked as investment income.

The second of the proposals in Amendment No. 14 implements the conditional tax reliefs by raising personal allowances for single-parent families by £70, from £280 to £350. This allowance applies to two-parent families where the wife is totally incapacitated thoroughout the year of assessment.

The third part of the clause eases the present rules for additional personal allowance to give an allowance to single- parent families who are unable to claim it at present because their children's income is above the limit of the child allowance. From now on, the level of the children's income will have no bearing on the parent's claim to the additional personal allowance. This follows an undertaking given by the Chief Secretary in Committee.

Mr. Deputy Speaker

Before I formally put the amendment, it may be for the convenience of the House if I explain, so that it is quite clear, that we are discussing Amendment No. 14 with Amendment No. 12 and that it will be convenient to discuss at this time the sub-amendments that were called. At the appropriate time, should it be so desired, Divisions on the sub-amendments may take place.

Mr. Lawson

The Financial Secretary has attempted to lead us into a whole new economic debate, but we have many important amendments to deal with tonight and, even if he is not anxious to get his business through, we are anxious to give proper scrutiny to the remaining amendments. So I shall waste little time on the hon. Gentleman's comments except to say that it is the biggest nonsense of all to pretend that there would be any real increase in allowances as a result of these amendments.

The increase in the married man's allowance is 12 per cent.—roughly half the rate of inflation of the past year. The increase in the single allowance is about 9 per cent.—an even smaller proportion. In real terms, allowances have declined and the rates of tax have risen. Even if the Financial Secretary is not prepared to index these figures, he should understand the difference between money terms and the real terms and not try to pull the wool over the eyes of hon. Members on this matter.

It is significant that the Chief Secretary is not here to deal with this matter. In the normal course of events he would be with us, but he is dealing with what really matters. He is busy finalising the details of the £1,000 million cuts in public expenditure. That is really important in dealing with the problems of inflation and the management of the economy.

By contrast, this residue of an irrelevant TUC deal is neither here nor there. At least the Chief Secretary has got his priorities right. He is dealing with what is important in economic policy. The Financial Secretary is concerned with a TUC deal which is of supreme irrelevance to the serious economic problems facing the country.

10.0 p.m.

I turn to Amendment No. 14. I welcome that amendment. The Financial Secretary said that it had been drafted in pursuance of an undertaking given by the Chief Secretary in Committee on the Floor of the House in reply to an amendment I moved on 13th May. It shows that persistence has paid in this matter.

There was a manifest injustice in the way that parents of children, especially students, who tried to earn a little money in the vacation were treated. As soon as a child earned over £115, the parents' child allowance was taken away pound for pound. My hon. Friend the Member for Norfolk, South (Mr. MacGregor) pointed that out forcibly in his amendment in 1974. That amendment was resisted by the Government. I moved another amendment to correct that injustice in 1975. That, too, was resisted by the Government.

I moved a further amendment to the Finance Bill this year. The Chief Secretary said that he agreed with the point and would try to meet it. He has now met it, although he has not done so to my total satisfaction. However, the important fact is that he has very largely met the point. I welcome his response to the cause for which the Opposition have been fighting for the past three years.

I made a number of points in Committee. [Interruption.] If Government supporters wish to intervene, I am more than happy to allow them to do so. I see the hon. Member for Keighley (Mr. Cryer) squatting. That does not prevent him from being voluble. If he wishes to rise, I shall be more than happy to give way to him. In Committee I showed prescience that I did not realise I possessed. On 14th May I said: Even if they are not prepared to accept it"— that is, the concession for which we were pressing— for unearned income, I hope that the Government will move an amendment of their own, accepting it for earned income. In the case of earned income one other objection was given last year by the Financial Secretary, when he said that we were just about to go away from child allowances and move to a whole new system of child benefits. That is not an argument for not acting now."—[Official Report, 13th May 1976, Vol. 911, c. 743.] My goodness, that is not an argument: the whole child benefit switch has been abandoned. However, the Government have, in this matter, acted now. I welcome their action.

In Committee I pointed out—the point was also made by my hon. Friend the Member for Norfolk, South—that[Interruption.] When Government supporters make so much noise from a sedentary position, it is necessary for me to make every point at least twice. However, I am glad that Government supporters are present. I say that sincerely.

In Committee I made the point that the existing system was particularly absurd, in that, while even help was given to students who wished to draw social security benefits, perhaps because the National Union of Students advised them to, and the parents of such students did not suffer any reduction in the child tax allowance, the parent of a student who wished to finance himself in the long vacation by actually earning money was harshly penalised.

The Government have now raised the amount that a child up to the age of 18, or any dependent child, may earn before there is a reduction in the parents' child allowance. The Government have raised the figure from £115—at which point it had remained since 1963–64, which is far too long—to £350. That is a reasonable improvement. However, I ask the Financial Secretary to explain the basis for that figure.

Until 1963–64 the amount that a child could earn before there was any reduction in the parents' child allowance was the same as the allowance for a child under the age of 11. That would make it £300 at present. The Government have now come forward with a proposal to make it £350.

I do not cavil at putting it still higher. But how is the figure of £350 arrived at? I suppose that it might be fixed there because it is the average of the allowance for a child between the ages of 11 and 16, which is £335, and the allowance for a child over 16, which is £365. I hope that the Financial Secretary will tell us whether that average was taken. It might, in fact, be more logical, because these children are mainly over 16, to take the allowance for a child over 16, which is £365.

But unless we peg or anchor this allowance to one of the child allowances, it is likely to be forgotten again. We must not allow this allowance to get stuck as it has done in the past. We must not have a repetition of the 13 wasted years in which the allowance from 1963–64 to the present time stayed at £115. Since the Government are not prepared to index the allowance, as I believe they should, it is important that it be anchored to one of the child allowances which is under regular review so that it will automatically be regularly reviewed in the same way. I hope that the Financial Secretary will address himself to this point

The Government in their amendment have made a distinction—this is a novelty in the system—between earned and unearned income. The limit for investment income before there is any reduction of the parents' allowance remains at £115. Investment income is defined as anything other than earned income, which would include compensation for injury and that kind of income. It is not merely investment income in the normal sense.

Although the Minister has met the main argument, which was concerned with earned income, petty malice is involved here. There is enough discrimination in the system against investment income, as it is: there is no need to add to it still further. If it is to be added to still further—this is the burden of one of our amendments—it should cease at the age of 16, not 18 as the Government would have it. After all, the age of 16 is a more rational break point. It is the school leaving age, the age at which a child can start taking a full-time job. It is also the age at which a child can get married, with parental consent. Therefore, 16 seems to be the logical break point rather than 18.

I mentioned getting married, because this is mentioned in the Chancellor's own amendment. There are additional arguments for this, with which I shall not detain the House, which are implicit in the Expenditure Committee's report on maintenance allowances for children between the ages of 16 and 18.

The main point, however, is that, at long last, after great pressure from this side of the House over three years, the Chancellor has yielded. We welcome this concession. Parents with children in this age group will be delighted with the news. But we want an assurance that the allowance will not again be permitted to be left behind at a time of rapid inflation. The fact that it was left behind for 13 years, from 1963–64 to the present day, is a major scandal. This is one of the many arguments for indexation. I do not propose to develop that point now. The Financial Secretary knows my views on that matter.

But it is important, if we are not going to let this allowance get left behind again, for the Financial Secretary to give us an assurance that the allowance will be tied in a fixed way to the other child allowances so that it will be automatically reviewed under the same procedure as the other allowances. For this affects a small but important minority in the community who otherwise will get left out.

Mr. MacGregor

As my hon. Friend the Member for Blaby (Mr. Lawson) has said, on the very first Finance Bill with which I was involved when I came into the House I proposed an amendment along these lines, and I have been associated in every Finance Bill since, with my hon. Friend, in trying to pressurise the Government into doing something about this matter.

I am unreservedly grateful to the Financial Secretary for honouring the commitment given in respect of this amendment. Since perseverance seems to have brought its own reward, I hope that the Minister will do the same next year in respect of the amendment about tied homes which we were discussing earlier. We shall attempt to persuade him to do so.

I think the position was becoming quite ludicrous because there was a positive incentive to students simply to take social security benefits rather than try to earn during the summer vacation. That was an extra strong argument which the Minister has obviously now accepted.

I do not want to be grudging in any way in my gratitude but there is one group in this general area which is still not covered, which, in Committee, we referred to only briefly but in respect of which, since the publicity given to this amendment, I have heard of further cases. This is the case of people on sandwich courses. One particular example often makes the point better than generalities. I have the case of somebody who has an 18-or 19-year-old son who is serving a six-month apprenticeship with British Leyland for which he gets what British Leyland describes as a subsistence allowance of £25 a week, provided, I presume, because he is living away from home. That is to enable him to meet all his commitments during that six-month course. He then spends the other six months at a polytechnic doing a course, reading business studies. I understand that the only grant which he has been given for this remaining six months is one of £2.90p for the whole year.

Unfortunately, because he is earning this £25 a week, which over the period amounts to £600 and, therefore, takes him over the top, his parents will not only have to meet the cost of his subsistence during the remainder of the six months but the boy's father will have his child allowance substantially reduced, even if not totally eliminated.

However, this still seems to be an anomaly to which I hope that, on a future occasion, the Financial Secretary will apply his mind and perhaps deal with in the same way as he has dealt with the points that we have made in respect of child allowances.

Mr. Wigley

May I thank you, Mr. Speaker, for calling Amendment No. 263. It is gratifying to have an opportunity to speak on it, because my party was not represented in the Committee. Perhaps those who decide these things will give us an opportunity in future years to make our points known on that occasion.

As a party we feel strongly about the need to be more generous in the raising of the personal allowance. We feel that the Government have gone some way and, hearing the Minister speaking a moment ago, I appreciate the significance of the sum that the Government are allowing in terms of absolute cash. The magnitude of that sum, running up to almost £1,000 million, only reflects the effect of inflation, but it takes that much money only to catch up to half, or even one-third, of what is necessary to get back to the situation of 1972–73 in terms of allowances.

There has been a grave change in income tax liability, particularly in respect of the lowest-paid, in recent years. That has had a very hard effect indeed on many who are in the lower quartile of manual employees.

Last night we had a very moving debate on war widows, a debate in which certain hon. Members spoke against the amendment which helps war widows because they felt that there was an inequity and that what was being done for war widows should be done for other people who are, perhaps, equally deserving. One case cited was that of someone who came through the war alive and well only to die a few weeks later at the age of 36, with five children. His widow would not have benefited from the amendment passed last night.

10.15 p.m.

A whole range of people deserve, if not as much, at least something like the benefit given to war widows. We should be considering the level at which the tax threshold files to ensure that income tax does not hit people whom it was never designed to hit.

An Answer to the hon. Member for Walsall, South (Mr. George) some time ago showed that for a married couple with two children the income tax threshold in 1947–48 started at about 110 per cent. of average earnings. By 1972–73 the threshold was down to 60 per cent. The change in the last five years, particularly since 1972–73, has been even more staggering. The allowance for a married couple has dropped by 23 per cent. in real terms between 1972–73 and 1975–76. To return just to the 1972–73 level, not to mention the 1948 level, we calculate that we should need to raise the single person's allowance from £675 to £953. Our amendment specifies £900, so to that extent it underrates the job which needs to be done. The married couple's allowance would have to be increased to more than £1,200 and our amendment proposes £1,275. I emphasise that this is only to get back to the 1972–73 position, which has been so drastically and devastatingly eroded by the effects of inflation.

Some groups have been hit particularly hard by this change. An Answer to the hon. Member for Norfolk, North (Mr. MacGregor) on 19th May showed that a manual family with four children had their tax threshold lowered from over 80 per cent. of average earnings in 1972 to only 59 per cent. in 1975–76. That is a staggering reduction for the group in society which can least afford to bear the burden—those who are nearest the door in terms of resources and cannot absorb this increased level of taxation.

Indeed, it is the lowest-paid who have been relatively hardest hit. The lowest decile of manual workers with two children in 1970 paid on average 70p a week in income tax. In 1975 they were paying £4.10—an increase from 4.1 per cent. of gross pay to 11.1 per cent. That compares with the increase for the median of manual workers from 13.3 per cent. of gross pay in 1970 to 18.5 per cent. in 1975. So the increase for the lowest decile was almost threefold but for the median it was less than 50 per cent. For the median of non-manual workers the increase was from 16.8 per cent. in 1970 to 20.8 per cent. of gross pay in 1975. It is the lowest-paid who have been hardest hit, largely because of the effect of inflation.

There is a need for action by the House to make up for the effect of inflation where it hits hardest. Because the threshold bites more into the lower-paid, the tax net has caught many more people. In 1972 or thereabouts the changes in the thresholds meant that 3 million people were excluded from liability for income tax. I am certain that the changes since 1972 mean that many more people than those 3 million have been taken back into the tax net.

Between 1970 and 1975 the earnings in real after-tax terms of the lowest quartile of non-manual workers increased by 5.6 per cent. and of the upper quartile by 4.6 per cent. That shows a narrowing of only 1 per cent. over five years in differentials. So it is a myth that there has been a great narrowing of the wages differentials over the last five or six years. The narrowing has been only 1 per cent. over five years, or 0.2 per cent. per annum on average.

The net result is that families are beginning to pay income tax on 45 per cent. of average incomes in 1975 whereas it was paid on 55 per cent. of average earnings in 1970.

The proposals in the amendment would cost money. I know that that will be the response from the Government Front Bench. The hon. Member for Horsham and Crawley (Mr. Hordern) received an Answer on 1st March to the effect that it would cost £1,260 million to effect half our proposed increase of the tax threshold. Presumably it would cost about £2,500 million for what we propose. But that is the cost that those at the lower end of the income scale have been asked to pay over the past four years towards the Government's programme. In other words, it is the cost of the MRCA programme—that might appeal to some Labour Members—that those at the lowest end of income scale are being asked to bear. Conservative Members might feel that it is the cost of the nationalisation programme. However, the fact is that about £2,000 million to £2,500 million is now being borne by those who were not paying income tax some four years ago.

The present situation is having a devastating effect. It is biting into people's living standards and affecting them gravely. Even more important, the Government should bear in mind the effect that it will have on their pay policy. The current incomes policy will not be sustainable unless there is a substantially greater movement of the income tax threshold. We ask the House to support Amendment No. 263 to help all those at the lower end of the income scale. The amendment will only regain the situation that existed in 1972.

Mr. Nott

The provocative nature of the Financial Secretary's remarks in moving the Government amendment led me to believe that he is anxious to have another economic debate, especially on the pay deal. I am not slow to respond to that sort of challenge, but if the hon. Gentleman does not know how to get his own business I might at least assist him by failing to respond to the challenge that he threw out. We have debated the pay deal on sufficient occasions not to be provoked by his remarks.

I fully support the remarks of the hon. Member for Caernarvon (Mr. Wigley). Every word he uttered received an echo on the Opposition Benches. I very much hope, Mr. Speaker, that you will allow a Division on Amendment No. 263. However, I fear that my hon. Friends will not be joining the hon. Gentleman in the Lobby in its support. That is not because we do not join him in spirit. Indeed, his every word was an indictment of the period of Socialist government, an indictment that could not have been put in better terms. If I may say so, Mr. Speaker, I sometimes wonder why Wales is Socialist. I sometimes wonder why the Welsh nationalists as a body tend frequently to support the Socialist Party rather than our own.

The hon. Member for Caernarvon mentioned £2,500 million, and that is the price of Socialism. It is the extent to which real income has been taken out of the pockets of the lower-income groups and transferred into Government spend- ing of the most profligate and wasteful sort.

When the hon. Gentleman divides the House, if he is given the opportunity to do so, I am sure that the Conservative Party will support him in the Lobby in spirit. However, the sums involved are so vast that I am afraid we shall not actually be with him. Nevertheless, I hope that he will be able to demonstrate his own feelings and those of his party about the Government's record.

Mr. D. E. Thomas (Merioneth)

I support Amendment No. 263. Despite the kind and generous remarks made by the Conservative Front Bench spokesman, I want to suggest where the real difference is between our parties. It is not that we do not agree on the impact of inflation on low-income families generally under the Labour Government —and under the previous Conservative Administration. The question of the tax threshold has not been dealt with adequately by either Government. The major difference is in our priorities of public expenditure.

Whereas Plaid Cymru would argue that transferred expenditure which becomes part of the social wage is desirable, public expenditure which is squandered on non-viable defence projects is no way to spend public resources. That is perhaps the major reason why neither in spirit nor in body are we more often in agreement with Conservative Members, some of whom are away both in spirit and in body at convenient times.

The issue of the tax threshold and the impact of income tax and the interrelationship between the tax threshold and income maintenance policy has been neglected by the Government. A much-neglected document was published over a year ago entitled "A Joint Framework for Social Policy" by the Central Policy Review Staff. One of its central aims was to ensure greater co-ordination between Government Departments. Improved co-ordination is essential between the Treasury and the Department of Health and Social Security in securing a satisfactory relationship between benefits and tax thresholds. I hope that the Minister will indicate a firm intention to secure better integration to secure an overall policy to tackle family poverty.

Speaking in the debate on the Queen's Speech, the Chancellor of the Exchequer said: income tax is already bearing heavily, not only on the average worker but also on the low paid. He did not go on to indicate the way in which the tax threshold has been biting further and further into the real income of families.

According to figures recently produced by Mr. Chris Trinder, taking the tax threshold and its relation to national average earnings for different types of family between 1961–62 and 1975–76, and taking the level of 100 in 1961–62, the position of a single person now is down to 92 in terms of the level of the tax threshold in relation to national average earnings. Again taking the base figure of 100 in 1961–62, for a married couple with one child the position is down to 64 in the last financial year. Taking the same base figure, the position of a married couple with four children is down to 47 in 1975–76. The tax threshold for the four-children family has fallen to less than half of its 1961–62 value in the last financial year. That fall is far more than severe than the fall experienced by single persons. Families with children are being penalised severely at a time when the Government are talking of a need for a strategy for family poverty.

I am concerned not only about the tax threshold position in relation to national average earnings but about the people below supplementary benefit level who are still being taxed. It is an incredible anomaly within our social security and tax systems that people with earnings below the official poverty line are being taxed.

The Chancellor referred to that in his speech when he said: There are now significant numbers of men and women whose earnings are below the level for supplementary benefit but who are now being taxed on those earnings. Yet to have kept such people out of tax by further increasing the personal allowances…I would have had to increase the basic rate of income tax by a further 3p, to 38p in the pound."— [Official Report, 25th November 1975; Vol. 901. c. 706.] Our amendment is aimed at raising the tax threshold to ensure that low-income families in poverty and families on sup- plementary benefit are not subject to the high marginal tax rate from which they suffer now.

In 1952 a married man with two children did not begin to pay tax until his earnings were 107 per cent. of average earnings. After the April 1975 Budget that same family man with two children began to pay tax as soon as his earnings were up to 49 per cent. of average earnings. If the tax threshold for that man had remained at the same level in proportion to average earnings as it was in 1952 the tax threshold for that family would now be £58.48p. But the same family starts to pay tax in 1975 on an income of only £26 a week.

10.30 p.m.

The Chancellor has admitted that the Government have not been able to maintain the level of tax thresholds in real terms. Successive Governments have failed to do it. Despite the Conservatives' kind words about our amendment, I doubt whether they would have been prepared to carry out what we propose had they been in office.

In the 1975 Budget the married person's tax allowance was increased by only half the amount which would be needed to bring it up to its value at April 1974. That had substantial effects on low-paid workers and their families. I represent a relatively low-paid rural area with a high proportion of the population living on marginal incomes. That is why my party feels so strongly about the issue. We see how the tax threshold is eating into the low pay and social security benefits on which families in such areas must rely.

This year many poor families whose head of household is in full-time work have started to pay income tax. The argument is similar to that last night about war widows. The proportion of income of working families taken in tax in the last tax year is significantly higher than the previous one. A married man with two children who is earning £25 a week will have paid £17.75 in tax during the tax year 1974–75. This year his tax bill for an equivalent level of earnings will rise to £89.25. That shows how inflation and the tax threshold have eaten into the income of poor families.

It is incredible that the tax threshold has fallen to such a low level that families earning low wages or on supplementary benefit or family income supplement are being taxed. We should like the Government to tell us that they will seriously examine the relationship between social security benefits and the taxation system. I see no reason why that should not be a priority for the Government. I know that a Royal Commission is looking at the overall distribution of income and wealth. We look to it to give us new statistics about the real wealth and poverty position in the United Kingdom. But we also look to the Government now to examine the real distribution of income between social benefits and taxation.

I cannot stress sufficiently the problems of families on supplementary benefit and family income supplement who are being taxed. An estimate has been made by the Child Poverty Action Group that it would cost about £950 million to bring the tax threshold up to a level at which families on FIS would not be taxed.

If the Government cannot go the whole way on our amendment, I press them to raise the tax threshold so that families are lifted at least to the FIS entitlement level. That would be only logical, let alone providing social justice, which the Labour Party pretends to support but so often fails to bring about.

Mr. Robert Sheldon

The hon. Member for Merioneth (Mr. Thomas) asked for an assurance that in the coming year I would consider the relationships between social benefits and the tax system. I can give him that assurance. This is a matter of the highest importance, and the interaction between the two is becoming more and more important as the benefits are revalorised at higher levels than the tax thresholds. We have discussed this matter on a number of occasions and it will receive my close attention.

Amendment No. 263 would be very expensive. It would involve extra relief amounting to a figure of £1,500 million compared with that which we have already undertaken to provide. I am sure the hon. Gentleman will forgive me if I call it a "cornucopia amendment" since it is beyond the capacity of any Government, faced with the present economic situation, to meet the request embodied in it. I understand the important principle behind the amendment and I appreciate the amount of work undertaken by both the hon. Member for Merioneth and the hon. Member for Caernarvon (Mr. Wigley) in tabling their suggestions.

I know that both hon. Gentlemen will expect me to spend a little time in considering the detailed points which they have made and the figures that underlie their contributions. I shall be happy to examine the matter, and if any points emerge from their speeches which I might usefully take up, I shall be happy to do so.

The hon. Member for Norfolk, South (Mr. MacGregor) asked me about sandwich courses. I regard such courses as extremely important because they are the finest form of training for industrial management. I am always happy to provide assistance, and, indeed, I have been able to do so on one or two previous occasions. I shall take up his points and consider them.

The hon. Member for Blaby (Mr. Lawson) pointed out his own persistence in trying to obtain an increase in the child income limit and claimed credit for his own role. I am happy to accept that, but he must remember that many people before him have drawn attention to these matters. The hon. Gentleman seems to think that nothing of importance ever happened in this House before his arrival. These matters were raised by a number of hon. Members, including me. The main difference is that in those days—I am not making a party point here—Ministers did not take a great deal of notice of what was said in Committee. These days Ministers obviously are more ready to respond to what is said.

The hon. Member will not want me to go further into the indexation argument. We have explored that matter on other occasions and I do not wish to get caught up in it again. I think I owe the hon. Gentleman an explanation on the question of the level at which the figure is set and the reasons for it. The right hon. and learned Member for Surrey, East (Sir G. Howe) and the hon. Member for Guildford (Mr. Howell) tabled an amendment to provide for a figure of £365. We have gone rather nearer to that proposal than we have gone to the proposal of the hon. Member for Blaby. The hon. Gentleman may consider that a sign of generosity on our part.

Mr. Lawson

Will the Minister consider one important point? Is this proposal being anchored to an existing child allowance, or is it to be left on its own? The £365 related to an allowance for a child over 16. If the figure is not anchored to an existing child allowance, there is a fear that the matter will be left as it is for many years to come.

Mr. Sheldon

It will come as no surprise to the hon. Gentleman to hear that I can offer him no assurance on that point. He seeks to align any level of benefit or allowance with the cost of living, either directly or indirectly. I am afraid that I can give him no assurance on that matter.

Mr. Speaker

I wish to explain to the House why I am unable to call for Division Amendment No. 263 in the name

of the hon. Member for Caernarvon (Mr. Wigley) which is being taken with this group. If Government Amendment No. 12 is carried, Amendment No. 263 will fall. That would be inconsistent with a decision taken by the House. Therefore, to allow an opportunity for a Division, I propose to accept a manuscript amendment to Government Amendment No. 12. That amendment occurs in line 3 and seeks to leave out '£1,085' and insert '£1,275'.

Manuscript amendment proposed: In line 3, leave out '£1,085' and insert '£1,275'.—[Mr. Wigley.]

Question put, That the amendment be made:—

The House divided: Ayes 24, Noes 191.

Division No. 249.] AYES [10.40 p.m.
Bain, Mrs Margaret Johnston, Russell (Inverness) Watt, Hamish
Bradford, Rev Robert Kilfedder, James Welsh, Andrew
Brotherton, Michael Penhaligon, David Wigley, Dafydd
Dunlop, John Reid, George Wilson, Gordon (Dundee E)
Evans, Gwynfor (Carmarthen) Ross, Stephen (Isle of Wight) Winterton, Nicholas
Grimond, Rt Hon J. Smith, Cyril (Rochdale)
Henderson, Douglas Steel, David (Roxburgh) TELLERS FOR THE AYES:
Hooson, Emlyn Thomas, Dafydd (Merioneth) Mrs. Winifred Ewing and
Howells, Geraint (Cardigan) Thompson, George Mr. Douglas Crawford.
Aliaun, Frank Davies, Ifor (Gower) Irving, Rt Hon S. (Darlford)
Anderson, Donald Deakins, Eric Jackson, Colin (Brighouse)
Archer, Peter Dean, Joseph (Leeds West) Jackson, Miss Margaret (Lincoln)
Armstrong, Ernest de Freitas, Rt Hon Sir Geoffrey Jay, Rt Hon Douglas
Ashton, Joe Dempsey, James Jeger, Mrs Lena
Atkins, Ronald (Preston N) Doig, Peter John, Brynmor
Atkinson, Norman Dormand, J. D. Johnson, James (Hull West)
Barnett Guy (Greenwich) Douglas-Mann, Bruce Jones, Barry (East Flint)
Bates, Alf Duffy, A. E. P. Jones, Dan (Burnley)
Bean, R E. Dunwoody, Mrs Gwyneth Kelley, Richard
Benn, Rt Hon Anthony Wedgwood Ellis, John (Brigg & Scun) Kilroy-Silk, Robert
Bennett, Andrew (Stockport N) English, Michael Lambie, David
Blenkinsop, Arthur Ennals, David Lamborn, Harry
Boardman, H. Evans, Ioan (Aberdare) Lamond, James
Booth, Rt Hon Albert Ewing, Harry (Stirling) Latham, Arthur (Paddington)
Boothroyd, Miss Betty Fernyhough, Rt Hon E. Leadbitter, Ted
Bradley, Tom Flannery, Martin Lewis, Ron (Carlisle)
Bray, Or Jeremy Foot, Rt Hon Michael Litterick, Tom
Brown, Hugh D. (Provan) Ford, Ben Loyden, Eddie
Brown, Robert C. (Newcastle W) Fowler, Gerald (The Wrekin) McCartney, Hugh
Buchan, Norman Freeson, Reginald McElhone, Frank
Buchanan, Richard Garrett, John (Norwich S) MacFarquhar, Roderick
Callaghan, Jim (Middleton & P) Gilbert, Dr John McGuire, Michael (Ince)
Campbell, Ian Ginsburg, David MacKenzie, Gregor
Canavan, Dennis Goodhart, Philip Mackintosh, John P.
Cant, R. B. Gourlay, Harry Maclennan, Robert
Carmichael, Nell Graham, Ted McMillan, Tom (Glasgow C)
Clemitson. Ivor Grant, George (Morpeth) McNamara, Kevin
Cocks, Michael (Bristol S) Grocott, Bruce Magee, Bryan
Cohen, Stanley Hamilton, James (Bothwell) Mahon, Simon
Coleman, Donald Hardy, Peter Marks. Kenneth
Conlan, Bernard Harper, Joseph Marquand, David
Cook, Robin F. (Edin C) Harrison, Walter (Wakefield) Marshall, Dr. Edmund (Goole)
Corbett, Robin Hart. Rt Hon Judith Maynard, Miss Joan
Cox, Thomas (Tooting) Hatton, Frank Millan, Bruce
Crawshaw, Richard Heffer, Eric S. Miller, Dr M. S. (E Kilbride)
Crowther, Stan (Rotherham) Horam, John Molloy, William
Cryer, Bob Hoyle, Doug (Nelson) Morris, Alfred (Wythenshawe)
Cunningham, G. (Islington S) Hughes, Rt Hon C. (Anglesey) Morris, Charles R. (Openshaw)
Cunningham, Dr J. (Whiteh) Hughes, Mark (Durham) Murray, Rt Hon Ronald King
Dalyell, Tam Hughes, Robert (Aberdeen N) Ogden, Eric
Davies, Bryan (Enfield N) Hughes, Roy (Newport) O'Halloran, Michael
Davies, Denzil (Llanelli) Hunter, Adam Orbach. Maurice
Ovenden, John Rowlands, Ted Wainwright, Edwin (Dearne V)
Owen, Dr David Selby, Harry Walden, Brian (B'ham, L'dyw'd)
Padley, Walter Sheldon, Robert (Ashton-u-Lyne) Walker, Terry (Kingswood)
Palmer, Arthur Short, Rt Hon E. (Newcastle C) Ward, Michael
Park, George Short, Mrs Renée (Wolv NE) Watkins, David
Parker, John Skinner Dennis Watkinson, John
Parry, Robert Small, William White, Frank R. (Bury)
Phipps, Dr Colin Snape, Peter White, James (Pollok)
Prescott, John Stallard, A. W. Whitehead, Phillip
Price, C. (Lewisham W) Stewart, Rt Hon M. (Fulham) Willey, Rt Hon Frederick
Price, William (Rugby) Stoddart, David Williams, Sir Thomas
Radice, Giles Stott, Roger Wilson, Alexander (Hamilton)
Richardson, Miss Jo Strang, Gavin Wilson, William (Coventry SE)
Roberts, Albert (Normanton) Strauss, Rt Hon G. R. Wise, Mrs Audrey
Robinson, Geoffrey Summerskill, Hon Dr Shirley Woodall, Alec
Roderick, Caerwyn Thomas, Jeffrey (Abertillery) Woof, Robert
Rodgers, George (Chorley) Thomas, Mike (Newcastle E) Wrigglesworth, Ian
Rodgers, William (Stockton) Thomas, Ron (Bristol NW) Young, David (Bolton E)
Rooker, J. W. Thorne, Stan (Preston South)
Roper, John Tierney, Sydney TELLERS FOR THE NOES:
Rose, Paul B. Tuck, Raphael Mr. Tom Pendry and
Ross, Rt. Hon W. (Kilmarnock) Urwin, T. W. Mr. James Tinn.

Question accordingly negatived.

Amendments made: No. 12, in page 16, line 34, leave out 'In section 8(1A) and (1B) of the Taxes Act' and insert 'In section 8 of the Taxes Act (personal reliefs)—

  1. (a) in subsection (1)(a) (married) for "£955" there shall be substituted "£1,085";
  2. (b) in subsections (1)(b) (single) and (2) (wife's earned income relief) for "£675" there shall be substituted "£735";
  3. (c) in subsections (IA) and (1B)'.—[Mr. Robert Sheldon.]

No. 13, leave out line 37 and insert— '(2) In the year 1976–77 only, the allowances set out in section 10(3) of the Taxes Act (children) shall be amended as follows—'.—[Mr. George Cunningham.]

No. 14, in line 43 at end insert— '(3) In section 10(5) of that Act (restriction of relief where child has income exceeding £115) for "£115" there shall be substituted "£350" and at the end of the proviso there shall be inserted the words "and that in the case of a child who—

  1. (a) is under the age of eighteen at the end of the year of assessment and is unmarried throughout that year; and
  2. (b) either has not earned income or has earned income not exceeding £235,
this subsection shall have effect with the substitution for the words "income exceeding £350" of the words "investment income (that is to say, income other than earned income) exceeding £115". (4) In section 14(2) and (3) of that Act (additional relief for widows and others in respect of children) for "£280" there shall be substituted "£350". (5) In section 14(2)(a) of that Act (relief available only for claimant entitled to relief under section 10 in respect of a child resident with him) after the words "resident with him" there shall he inserted the words "or would be so entitled apart from subsection (5) of that section".'.—[Mr. Robert Sheldon.]

Mr. John Hannam (Exeter)

I beg to move, in line 43, at end insert—

'(3) In section 10(5) of the Income and Corporation Taxes Act 1970 after the words "or other similar education endowment" shall be added "or of a mobility allowance awarded under section 37A of the Social Security Act 1975".

(4) After section 16(5) of the Income and Corporation Taxes Act 1970 shall be added the following subsection:— (6) In calculating the income of any such person as is mentioned in subsection (I) above, no account shall be taken of a mobility allowance awarded under section 37A of the Social Security Act 1975"'.

The amendment, in the name of hon. Members on both sides who take an active part in disablement matters, was debated in the previous debate on 13th May. In view of the preceding debate which has taken place on Government Amendment No. 14, which raised the child's disregard from £115 to £350, it would indeed be churlish not to thank the Government for accepting the arguments put forward during the Committee stage by hon. Members on both sides of the House.

The raising of the disregard level for earned income will now mean that a child receiving the mobility allowance and no other income will be able to keep the full amount of that allowance and will not in future lose half of the excess over the £115. But a disabled child in receipt of the mobility allowance of £260 who also receives some investment income which may exceed £115 may once again be in the trap of losing a pound for every pound of the child's tax allowance.

If the rather inadequate £5 a week mobility allowance is increased in the near future, as everyone hopes it will be—because at the moment it is not a proper alternative for a disabled person to the provision of a vehicle—we shall once again be back in the situation where, unless the disregard is adjusted up again, remembering that it has not been adjusted for a number of years before today, the 50 per cent, tax situation will arise for children receiving the mobility allowance.

I shall not repeat all the arguments that were advanced on 13th May. Suffice it to say that we exposed what appeared to be an anomaly which the Minister accepted. In the end, he asked for further representations to be made and said that he would look again at the amendment and the principle behind it.

It is the principle which is still at stake. We ask whether the income of a disabled dependent relative or child who is so disabled as to be in receipt of the mobility allowance should be aggregated with the parents' income for tax purposes. I do not argue for a tax-free mobility allowance, which is what the Minister seemed to imply in reply to the previous debate. If a child has other income which, together with the allowance, brings the total to a sum above the level of personal allowances, we should expect that child, like everyone else, to pay the fair whack of tax. But it must be unfair, and it cannot be the Government's intention, to have a situation where a disablement allowance like the mobility allowance awarded as of right to a child to enable him or her to get about and to live as integrated a life as possible results in its recipient being brought into the tax net.

We are pleased that Government Amendment No. 14 will lift this problem temporarily from the child receiving the basic allowance, but the danger remains that the tax erosion of the mobility allowance will start all over again when it is increased at some stage in the future. If some other unearned income exceeding £115 arises—possibly from the investment of a mobility allowance over previous years, or possibly from compensation for an injury or accident—we are back in this heavy 50 per cent. loss of the child's tax allowance.

The fact that the mobility allowance is treated as earned income is a great advantage, and I should like the Minister to confirm that it is treated as earned income.

We are also concerned about the continuing £115 threshold for adult dependants, and the second part of our amendment, subsection (4), therefore, is vitally important. I remind the Minister of the case of the 25-year old severely disabled adult dependant from Hounslow who was losing £65 a year of the mobility allowance because of the loss of the tax allowance. If a disabled person of 19, 20 or 25 in receipt of the mobility allowance finds himself in this position, surely he should be allowed the full value of the mobility allowance. As I understand it, this bar to the disabled adult dependant still remains at £115.

This amendment seeks to remove the mobility allowance, as already we have educational endowments removed, from the parents' taxable income. It does not involve any increased Government expenditure. It will not affect the position of a child's other income. It will remove an anomaly which will prove damaging once again in the future if it is allowed to remain part of this legislation.

11.0 p.m.

I wrote to the Financial Secretary early in June pointing out the effects of this anomaly on poorer families with disabled children or dependants. I had hoped to receive a reply before this debate, because it may have affected my attitude.

The Minister in a previous debate was unable to refute my arguments on this matter. The long-awaited uplifting of the disregard for earned income will alleviate the problem at this moment, but the anomaly still remains. I hope that the Government will accept this amendment, and the principle behind it.

Mr. Robert Sheldon

The amendment moved by the hon. Member for Exeter (Mr. Hannam) provides that for child allowance no account shall be taken of any mobility allowance received by the child or dependent relative. The £5 a week allowance comes to a total of £260 a year, and the hon. Gentleman gratefully accepted the previous amendment, the purpose of which was to increase to £350 the child's income limit. He accepts graciously that this goes perhaps the whole way to meeting his points, but he expressed some doubt about the possibility of tax erosion of the mobility allowance. I see his point.

It is not for me to give the hon. Member the assurance he seeks on these matters, which are the province of others as well as myself. But we have gone so far in advance of the mobility allowance—£350 compared with £260—that, naturally, looking at these matters, one would be surprised if the two were ever to overlap in the way they have done in the past. Although no one in my position could give him that categorical assurance, he may seek some comfort from the fact that the new figure exceeds the mobility allowance by such a large amount.

Mr. Hannam

Does the Minister accept that there is a limit of £235 on earned income by a child, and often there is unearned income which can accrue from compensation, or other factors, which will be included in the £350? Therefore, there is not such a great overlap above the mobility allowance as that which he indicated in his remarks.

Mr. Sheldon

The £350 includes all the income of the child concerned. If that child gets a large amount of other income besides the mobility allowance, it will, of course, use up some of the allowance, but that is not the point of the original amendment. We have met the main points in what is not an ungenerous way. The campaign which the hon. Member for Exeter has rightly carried out for these people has resulted in his point being met by the concessions and understanding which we have shown.

Mr. Hannam

Will the Financial Secretary answer the particular question about dependent adults? As I understand it, they are barred at £115. Anyone over 18 who will receive a mobility allowance will find himself or herself in exactly the same position as before.

Mr. Sheldon

If the hon. Member is talking about an incapacitated relative, such a relative can have an income of up to £731.

Amendment negatived.

Mrs. Lynda Chalker (Wallasey)

I beg to move Amendment No. 234, in page 16, line 43, at end insert— '(2A) In section 15(l) of the Finance Act 1974 (Maintenance payments), after the word "benefit" delete "the first £1,000 of."'. I am most grateful to you, Mr. Speaker, for calling this amendment, even though it seems to have come as a surprise to many hon. Members that the addendum should be added to the provisional selection of amendments. It is an important amendment.

Dedicated followers of debates on Finance Bills will recall that I first raised the question of the investment income surcharge on the maintenance income of divorced and separated women in the House last May. I stressed then the story of how my right hon. and learned Friend the Member for Surrey, East (Sir G. Howe) had attempted to rectify a very real injustice way back in 1965. I recalled that the right hon. Lady the Member for Blackburn (Mrs. Castle) had said in 1960–16 years ago now—that it was an outrage that women who had had to face the break-up of family life and their home should have their housekeeping income awarded as maintenance treated as if it were investment income.

Lest anybody should inquire, let me declare now that I have no personal interest in the amendment: I receive no maintenance, by agreement with my former spouse.

This is a very difficult situation. If a marriage breaks up in amicable circumstances, the amount of maintenance is agreed between the separated partners without recourse to the courts. In that case, the payment of tax is settled between the former husband and wife so that the wife receives her housekeeping without the interference of any Government Department.

The concern of my amendment is for those whose maintenance has to be agreed through the courts, where the divorce is less amicable or more complicated. I am well aware that our lawyers can in many cases of separation and divorce arrange successful maintenance without undue hassle, but there are an increasing number of divorces, and thus there are an increasing number of difficulties faced by separated and divorced women when it comes to the maintenance payments that they are allocated by the courts.

A divorced husband is allowed tax relief on the alimony or maintenance that he pays, but the divorced recipient pays tax—not just the ordinary basic rate tax, but the investment income surcharge —on all the maintenance income above £2,000. Maintenance income is being treated by our finance laws as unearned income. This is grossly unfair, and I sincerely hope that right hon. and hon. Members on both sides will listen carefully to the grounds on which I shall continue to fight hard to right this injustice once and for all.

On the last occasion when I raised this issue in Committee on the Floor of the House the Chief Secretary first sought to say, by implication, that the Government's action in past years in increasing personal allowances for widows had helped divorced recipients of court-agreed maintenance. This was absolute nonsense, so the right hon. Gentleman quickly changed tack once that was pointed out to him. He then told the House that his Government had given additional relief for the woman on maintenance income, and £1,000 has been added to the £1,000 relief applying already, so there is £2,000 of investment income relief already for that woman."—[Official Report, 11 th May 1976; Vol. 911, c. 399.] The Chief Secretary also tried to imply on that occasion that I had not understood the matter. I can tell him that he was very wrong.

Let me quickly remind the House of this Government's previous actions in respect of the maintenance income of divorced women. Under Section 15(1) of the Finance Act 1974 the first £1,000 of maintenance payments was exempted as investment income. At the same time, we experienced a reduction of the exemption limit for investment income surcharge from £2,000 down to £1,000, with Section 15 of the 1974 Act providing the additional exemption of £1,000. Thus, the divorced woman receiving maintenance was no worse off. It was no great concession for her; it was simply maintaining the status quo, while others received tougher treatment from this Government—which, perhaps, the House would have expected.

The entire payments situation of the divorced or separated couple rests on Sections 52 and 53 of the Income and Corporation Taxes Act 1970. The end result is that the ex-husband bears no effective charge on that part of his income which he uses to pay maintenance, but his ex-wife receives her maintenance less an amount equal to the tax charged at standard rate on earned income, but that income is then treated as unearned and is subject to the investment income surcharge for all maintenance of £2,000 per annum, or less than £40 a week. I remind the House that this is somewhat less than two-thirds of the average industrial wage, and she is seeking to do with that money many of the things for which a man today will not work because it is not worth working, because it is worth resting on the State for that sort of income.

Back in May I mentioned the growing number of divorces and the growing number of women being affected by a new sort of poverty trap as well as the greatly decreased purchasing power of the £2,000 maintenance before double taxation, which is what these divorced and separated women face.

Many of these families are now in extremely difficult circumstances as a result of inflation, and, despite the warnings given in the House over the past 16 years, there has been no move by the Government to rectify their plight. I warned the Chief Secretary on 11th May, and I had hoped that the Government would see fit to correct both an injustice and a financial hardship at the same time. If the Financial Secretary and his right hon. Friend refuse to act, I shall do my best to make them act in this matter. So far as we have been able to calculate, the sum of money involved is not large, though I expect that we shall hear from the Government that they are not inclined to accept the amendment.

Maintenance income is not investment income. It is fully earned. It is not unearned. Any woman who looks after husband and family over a period of years does not usually receive enough in the housekeeping to put money on one side to save. Some people would compare the maintenance income of a divorced woman with the pension which a widow might receive, because the divorced woman in certain circumstances, I think, can justifiably feel as though she has been pensioned off.

We do not treat the pension money as unearned income. We do not subject it to the investment income surcharge. But we subject to this system the maintenance income of a divorced woman when it is agreed through the courts.

If one goes through a comparison of a widow's financial position with that of the ex-spouse, one finds time and again that the ex-spouse comes off far worse, with a number of similar penalties and a number of other greater penalties besides the simple taxation penalties. The investment income tax relief is applicable to the widow but not to the ex-spouse. There is an additional tax allowance for the widow as a single parent, but not for the ex-spouse. There is freedom to earn an income without reduction or cancellation of maintenance because that is not a matter for the widow.

Thus, the ex-spouse comes off worse in each respect. The investment income surcharge discriminates heavily against the divorced woman in respect of higher maintenance over £2,000. The larger the proportion of tax paid by the recipient, the greater is the reduction of the tax liability of the husband. The Chief Secretary has often declaimed his hatred of discriminatory taxation. Here is just such a case. The paying husband gets standard rate tax relief, for he has all the benefit of the allowances, including that for maintenance, while his recipient wife pays investment income surcharge on top of basic rate and higher rate tax on all her receipts.

11.15 p.m.

It is no excuse to say that the lawyers may sort the matter out elsewhere. A fortunate person may have a lawyer who sorts out the matter equitably. But that should not be the basis of the laws that we make. The basis of the law should be justice and fairness to all the parties involved. Parliament must not fall over backwards to be just to the paying husband and not to the recipient wife in respect of investment income surcharge on maintenance payments. If the Treasury Bench continues a discriminatory practice which helps the higher-paid husbands whose marriages have ended, it will go against everything it has said on practically every other issue that it has resisted.

If the Treasury Bench is truly against using the tax system to help particular groups of taxpayers, it has no argument against accepting this amendment. Tonight the Chief Secretary may take the first steps to stop unfair discrimination. He may accept my amendment, which simply leaves maintenance payments subject to basic and higher rates of taxation but excludes them from treatment as investment income—for those payments are not investment income.

Mr. Robert Sheldon

The House will have listened with interest to the spirited arguments produced by the hon. Member for Wallasey (Mrs. Chalker). What the hon. Lady said on the subject came as no surprise. We listened to her with respect and interest and—if we cannot accept her arguments—a little trepidation.

The purpose of this amendment is to exempt from the investment income surcharge all payments of maintenance. When we look at the cases of which the hon. Lady has knowledge, and which we have learned something about, we recognise that a number of them are the cause of great concern and, frequently distress.

It is difficult to provide an estimate of cost of the amendment, as the information on which to base it is just not available. We always look at these matters with some doubt as we hone that further methods of analysing them may come to light so that we may be able to give an estimate which hon. Members may use either for or against the argument.

The first £1,000 of maintenance payment to the divorced or separated wife is not treated as investment income. I should explain the two types of income that qualify for either earned income status or investment income status. Earned income status is applicable to wages, salaries and pensions. Investment, or what we used to call unearned income is the rest. That is no condemnation of the second category of income. It just does not fit in with the first category. [Interruption.] If the Opposition will allow me, I shall go on to provide the justification. I hope that hon. Gentlemen will listen. If they have any questions I shall be glad to do what I can to answer them.

We introduced the £1,000 exemption limit, plus the additional £1,000 exemption for maintenance payments and—the hon. Lady did not mention this, although she did not have to do so—there is the 10 per cent. charge on the next £1,000. So a person can receive maintenance up to £3,000 before the full investment income surcharge becomes payable.

We should recall that, before the unified tax system came into operation, all tax was paid at the unearned income rate. There was no earned income relief of any kind whatever allowed against maintenance. We need to take that into account, because it is not many years since we went on to the unified tax system. Maintenance payments are, and always have been, treated as investment income for tax purposes.

Mr. Tom King (Bridgwater)


Mr. Sheldon

Perhaps I may remind the House—I am trying to respond to the hon. Gentleman who wanted a full account—that earned income was wages, salaries, pensions and other income derived from a job of work together with certain social security payments and that other income not falling within that definition was automatically treated as investment income. Historically, the distinction between the two categories of income that hon. Gentlemen decided to retain, when they were in Government and no doubt still wish to retain, until we hear to the contrary, has always been that earned income does not normally provide the kind of security that unearned or investment income has been considered to provide.

Mrs. Chalker


Mr. Sheldon

If the hon. Lady will allow me, I will come on to the distinction between normal investment income and the kind of income that she has in mind. Clearly, there is a distinction between investment income, which has been regarded as giving more security—that is the justification for the difference in treatment—and earned income, which is not of the same kind.

Mrs. Chalker

Will the hon. Gentleman give way?

Mr. Sheldon

I will give way as often as the hon. Lady requires, but I should like to complete this point. The hon. Lady should not read too much into this definition of investment income. It is simply the most convenient term to describe income which is not earned income. Maintenance payments are not directly connected with the job or occupation of the recipient. Therefore, they fall to be treated as investment income. I think that the hon. Lady was seeking to point out that investment income that consists of maintenance payments does not have the security of the ordinary type of investment income.

Mrs. Chalker

indicated assent.

Mr. Sheldon

I note that the hon. Lady indicates agreement. That is the point to which I was coming, and that is the point that the hon. Member for Bridg-water (Mr. King) keeps commenting on from a sedentary position.

We have taken this matter into account precisely because it has not got that same degree of certainty. We introduced the £1,000 exemption for maintenance payments as an initial relief to allow for the lack of certainty to which the hon. Lady referred.

Mrs. Chalker

I hope that the Financial Secretary will not try to get away from the fact that the Government, at the same time as they introduced the extra £1,000 exemption from investment income surcharge for maintenance payments, reduced the overall exemption from £2,000 to £1,000, leaving the divorced or separated woman in no different position from before, but everybody else worse off. That is no argument against accepting my amendment.

Mr. Sheldon

I understand the point being made by the hon. Lady. Clearly there were other reasons for the reduction of the investment income surcharge exemption limit, which she will know about; we felt the limit was too high. So it was reduced to £1,000. But—this is the difference—an exception was made for this category of people. By comparison with the normal arrangements, those receiving maintenance payments were entitled to a rather higher exemption limit than that applicable to the normal case. That was the measure of the preference. The hon. Lady can condemn and be very sad about the way in which the investment income surcharge exemption limit was reduced but it was not reduced for these people. For these reasons, and although I admire the way in which the hon. Lady has moved the amendment, I cannot accept it.

Mr. David Howell

We are not prepared to accept that disgracefully thin response to a matter which is a burning injustice. The Financial Secretary has not answered the point of my hon. Friend the Member for Wallasey (Mrs. Chalker). Nor has he grasped what my hon. Friend is trying to say in the amendment.

We are not debating the investment income surcharge. That is another issue on which we feel strongly. We understand the point of view of the Financial Secretary's party here. We happen to believe that the idea of charging the surcharge on someone who is receiving only £40 a week—two-thirds of the average manual wage—at a rate of 45 to 50 per cent. is repulsive. But we shall reserve our feelings on that for another time, when Labour Members understand what damage and evil they do with that point of view.

We are here discussing whether maintenance income—income going to the wife, who has worked, which is usually her sole income—can be classified as investment income at all. We do not think that it belongs in that classification. It is no good the hon. Gentleman telling us that this is how things have been classified in the past and that, therefore, maintenance income qualifies for a rate of investment income surcharge, although not at such a ferocious rate as the rest of investment income. That is not what we want to hear. We want to hear from the hon. Gentleman that it should no longer be classified as investment income. The hon. Gentleman has not explained why maintenance income belongs in this category.

The group with whom we are dealing —if we must talk in social groups—are perhaps the one group in society who have to pay investment income surcharge which adds up, through marginal tax rates, to 45 per cent. for £40 a week and 50 per cent. once they get over £60 a week, on an income which is entirely unconnected with the definition of investment income. I do not concede that it is right to have a surcharge on investment income at the present starting points, but let us be clear that in this case we are not even talking about investment income. This is a completely different group, who have worked and who are receiving what is in a sense their pension.

As my hon. Friend said, this is a discriminatory tax. It arises always from maintenance payments which in the hands of the payer involve considerable deductions off the top slice of either investment or earned income and which in the hands of the recipient are then taxed at these highly discriminatory rates, not at all as the income which they are.

We realise that the Financial Secretary has been told in his brief that no concession is to be given here because these are not in trade union terms, the useful people. They do not fit into the neat categories of organised labour and the TUC. They are only people who have slaved away and may have had a rough deal, whose husbands have pushed off and who have to live on the income they get. They are not the productive people who will get all the benefits. We think that it is disgraceful that no concession will be given, and that the Financial Secretary's reply was pathetic.

This is a group with a deep and genuine grievance, which can be repaired without large cost. The hon. Gentleman said that he did not know the cost, but it would probably be very small. If the surcharge cannot be changed in other areas, where it is creating a deep social injustice, at least in this area, where we are concerned not with investment but with a kind of pension, a change could be made, and these people could be classified as receiving an earned income and, therefore, not liable for the investment income surcharge.

We want to hear the hon. Gentleman's explanation. He has not given it to us yet. I hope that he does not imagine that silence will get him through the rest of the debate. We want to hear why this maintenance income, which is not investment income, cannot be reclassified and freed of the surcharge which the Government, in their pleasure, like to impose after the first £1,000, or the first £1,500 over 65.

11.30 p.m.

We should feel strongly about this matter if the investment income surcharge were back at the 1972, 1973 or 1974 levels, but we feel a thousand times more strongly about it now when it is considered in real terms. It bites into the basic maintenance income as well despite alleviation.

Let there be no feeling on the part of the Financial Secretary that he has satisfied us. Let him have no feeling that this matter can merely be swept under the carpet because it happens to suit the Labour Party to believe that all investment income must be surcharged. As I have said, this is not investment income. We are talking about a deprived social group that is often struggling in difficult circumstances. We want a serious answer from the hon. Gentleman.

Mr. Charles Fletcher-Cooke (Darwen)

The appalling lack of principle in the taxation system which the Financial Secretary has disclosed is terrifying. This might be referred to as investment income although we believe that it should not be regarded as such and although I do not understand the nature of the investment. Is it investment in fidelity or in something else? But why is the first £1,000 not investment income whereas anything over that is? That is the lack of principle that brings the whole taxation system into total contempt. Either it is investment income or it is not.

As my hon. Friend the Member for Guildford (Mr. Howell) has explained so well, the first £1,000 plus a little more is not regarded as investment income as there are many votes involved. It is regarded as investment income for that reason and not other. How the Inland Revenue can support that sort of distinction is beyond comprehension. There has been no explanation so far.

This is the most scandalous and disgraceful discrimination against women that I have ever heard about in the House. However, the Labour Benches are empty of the right hon. Member for Blackburn (Mrs. Castle), the hon. Members for Northampton, North (Ms Colquhoun) and Wolverhampton, North-East (Mrs. Short) and all those who are in favour of the proper treatment of ladies. They have absented themselves and left this issue to my hon. Friend the Member for Wallasey (Mrs. Chalker), who moved the amendment so well. That is incomprehensible, but even more incomprehensible is the lack of principle of the Financial Secretary. He must explain why the first £1,000 is regarded as earned—earned in what sense? Why earned when the other £500 is not earned? What is the principle behind that? Will the hon. Gentleman explain?

Mr. Robert Sheldon

Certainly. Until the 1973 unified tax system came into operation this income was classified by the Conservative Government as investment income or unearned income. When they introduced the unified tax system, which we took over, they classified it as investment income. They were in power for a long time and they carried out a great deal of research into their new tax measures.

Without being too controversial, they spent most of the time of the Treasury on tax matters rather than economic matters, to the disadvantage of the country. They took pride in those measures, but they did not see fit to meet the point made by the hon. Member for Wallasey (Mrs. Chalker). They had plenty of opportunity to do so, but they devoted a great deal of their time and energy—some of us say too much of their time and energy—to rather narrow points. The result of all that time and energy was not to change the system in the way required by the hon. Lady. It is easy for the hon. Lady to get support from the Opposition, who do not have responsibility for operating the tax system. My task is to operate the tax system which I inherited.

Mr. David Howell

Will the hon. Gentleman give way?

Mr. Sheldon

No, I cannot give way. The Opposition are in a great crusading mood, but I am entitled to put it to the House that the Conservatives created the system. It is not as if the Conservatives are saying that we should change a system which both parties inherited. They created that system, and we are charged with operating it.

Mr. David Howell

The Financial Secretary must not mislead the House. It is not correct to say that he inherited the system. The level of investment income surcharge for divorced women has been lowered to a starting point of £1,000 in money terms. The impact is much more in real terms. It is a gross distortion to imply that the system is the same as it was before.

Mr. Deputy Speaker (Sir Myer Galpern)

The Question is—

Mr. Ridleyrose

Mr. Newtonrose

Mr. Deputy Speaker

I did not see the hon. Member for Cirencester and Tewkesbury (Mr. Ridley). I was not aware that he was here. Mr. Newton.

Mr. Newton

I listened with admiration to my hon. Friend the Member for Wallasey (Mrs. Chalker) when she spoke on a subject about which I know very little. I then listened to one of the most pathetic speeches from a Treasury Minister I have ever heard. Having heard several pertinent questions put to the Minister by my hon. Friend the Member for Guildford (Mr. Howell) and my hon. and learned Friend the Member for Darwen (Mr. Fletcher-Cooke), I heard the Treasury Minister try to turn the debate into a party political knockabout by arguing that it was all the fault of the Conservatives, not answering the arguments put to him. That is disgraceful and cannot be allowed to pass.

My hon. and learned Friend the Member for Darwen said that no question of principle can be involved because the Government have chosen to exempt the first £1,000. That at once shoots down the argument that there is a magic distinction between this form of income and another form of income.

The Minister tried to rely on the fact that this income was treated as investment income under the tax system introduced by the Conservatives. So what? The Minister did not advance any good argument why that system should continue. Whatever may have happened in the past, and whatever may be the reason for the present position, we want to know why income which is patently not investment income is treated as investment income.

We have heard the historical story and the political story, but we have not heard why the maintenance income of divorced women should be treated as investment income. We have heard that pensions, social security benefits and earnings are treated as earned income. Why does it have to stop there?

When maintenance is not paid the social security people take over its payment. That often happens. Is that then treated as investment income or earned income? What principle is there in a situation in which the money is treated as earned income if the social security people pay it but as investment income if the husband pays it under the court order? There is no principle or common sense in anything the hon. Gentleman has yet said. We want another answer.

Mr. Deputy Speaker

I call the hon. Member for Cirencester and Tewkesbury (Mr. Ridley). I hope that the hon. Gentleman is aware of what has happened in the debate during his absence.

Mr. Ridley

Perhaps the Financial Secretary is very tired. It is unbelievable to hear him posing as the arch-Conservative whose only duty is to defend the tax system that he inherited, lasting out on an impossible wicket by saying that my right hon. and hon. Friends accepted the situation and that what is good enough for us is good enough for him.

What has happened to the hon. Gentleman's revolutionary zeal? Has he forgotten that the Government were not happy with the system of capital taxation what we left? Does he not remember night after night in Committee dealing with capital transfer tax? He was not happy with what my hon. Friends did there. He was not even happy with the investment income surcharge, which he lowered from £2,000 to £1,000. He was not happy about land, and brought in the development gains tax. He was not even happy with his own tax, so he brought in the development land tax. Then he says "My duty is to preserve the tax system that we inherited".

The hon. Gentleman would be wise to adjourn the debate before the vote on this amendment so that he can return tomorrow afternoon dressed in a white sheet and with a brief which can carry some weight with his hon. Friends, even if not with my hon. Friends. His answer was disgraceful and should not have been allowed to be given. If the hon. Gentleman cannot find a better argument than that his predecessors allowed this but he cannot think why, he had better try to find one tomorrow. I do not believe that the House will accept his performance.

Mrs. Chalker

With the leave of the House, may I say that in two and a half years I have never heard a speech quite like that which we have just heard from the Financial Secretary? He clearly said that wages, salaries and expenses were not investment income. What does he think the housekeeping awarded by the courts to a divorced woman in considerable difficulty is, except a housekeeping income, a wage for carrying on a job which often the errant husband has given up?

I have no doubt that the hon. Gentleman understands why I firmly believe that there can never be any certainty of maintenance. He took the point during his speech. He is looking at a remarkably small group of women in tax terms compared with other groups suffering more than somewhat from the inflation we have experienced in the past two years.

The hon. Gentleman cannot find an argument, so we have had bluff and guff for about 10 minutes, to deprive a group

of people doing their best to keep their remaining family together and bring them up in the spirit the House normally supports whole-heartedly. He is doing his best to make it the most difficult task possible for them.

Whatever tax reforms may be needed, if we go step by step we may at least achieve some of the goals of justice which the Minister has always said his party stands for. I do not believe that any more. I now know, and so should the country, which party will stand up for justice not only for war widows but for divorced women in receipt of maintenance income, which is truly earned and not unearned.

Question put, That the amendment be made: —

The House divided: Ayes 169, Noes 190.

Division No. 250.] AYES 11.45 p.m.
Adley, Robert Grist, tan Montgomery, Fergus
Aitken, Jonathan Grylls, Michael Morris, Michael (Northampton S)
Atkins, Rt Hon H. (Spelthorne) Hall-Davis, A. G. F. Morrison, Charles (Devizes)
Awdry, Daniel Hampson, Dr Keith Morrison, Hon Peter (Chester)
Bain, Mrs Margaret Hannam, John Mudd, David
Baker, Kenneth Harrison, Col Sir Harwood (Eye) Neave, Alrey
Beith, A J. Harvie Anderson, Rt Hon Miss Nelson, Anthony
Bennett, Dr Reginald (Fareham) Hawkins, Paul Newton, Tony
Benyon, W. Hayhoe, Barney Nott, John
Biffen, John Henderson, Douglas Oppenheim, Mrs Sally
Biggs-Davison, John Heseltine, Michael Page, John (Harrow West)
Blaker, Peter Holland, Philip Page, Rt Hon R. Graham (Crosby)
Boscawen, Hon Robert Hooson, Emlyn Parkinson, Cecil
Bottomley, Peter Hordern, Peter Penhaligon, David
Brittan, Leon Howe. Rt Hon Sir Geoffrey Peyton, Rt Hon John
Brown, Sir Edward (Bath) Howell, David (Guildford) Rathbone, Tim
Buchanan-Smith, Alick Howell, Ralph (North Norfolk) Rees, Peter (Dover & Deal)
Bulmer, Esmond Howells, Geraint (Cardigan) Rees-Davies, W. R.
Burden, F. A. Hunt, John (Bromley) Reid, George
Butler, Adam (Bosworth) Hurd, Douglas Renton, Rt. Hon Sir D. Hunts)
Chalker, Mrs Lynda Jessel, Toby Rhys Williams, Sir Brandon
Churchill, W. S. Johnson Smith, G. (E Grinstead) Ridley, Hon Nicholas
Clark, William (Croydon S) Johnston Russell (Inverness) Ridsdale, Julian
Clegg, Walter Kershaw, Anthony Roberts, Michael (Cardiff NW)
Cope, John Kilfedder, James Rodgers, Sir John (Sevenoaks)
Cormack, Patrick Kimball, Marcus Ross, Stephen (Isle of Wight)
Crawford, Douglas King, Evelyn (South Dorset) Rossi, Hugh (Hornsey)
Douglas-Hamilton, Lord James King, Tom (Bridgwater) Rost, Peter (SE Derbyshire)
Dykes, Hugh Kitson, Sir Timothy Sainsbury, Tim
Eden, Rt Hon Sir John Knight, Mrs Jill St. John-Stevas, Norman
Edwards, Nicholas (Pembroke) Knox, David Scott-Hopkins, James
Emery, Peter Lamont. Norman Shaw, Michael (Scarborough)
Evans, Gwynfor (Carmarthen) Langford-Holt, Sir John Shersby, Michael
Ewing. Mrs Winifred (Moray) Latham, Michael (Melton) Sims, Roger
Eyre, Reginald Lawrence, Ivan Sinclair, Sir George
Fairgrieve, Russell Lawson. Nigel Skeet, T. H. H.
Fell, Anthony Luce, Richard Smith, Cyril (Rochdale)
Fletcher-Cooke, Charles McCrindle, Robert Speed, Keith
Forman, Nigel MacGregor, John Spence, John
Fowler, Norman (Sutton C'f'd) Macmillan, Rt Hon M. (Farnham) Spicer, Jim (W. Dorset)
Fox, Marcus McNair-Wilson, M. (Newbury) Sproat, Iain
Freud, Clement Madel, David Stanbrook, Ivor
Fry, Peter Mather, Carol Steel, David (Roxburgh)
Gilmour, Sir John (East File) Maudling, Rt Hon Reginald Steen, Anthony (Wavertree)
Goodhart, Philip Maxwell-Hyslop, Robin Stewart, Ian (Hitchln)
Goodhew, Victor Mayhew, Patrick Stradling Thomas, J.
Goodlad, Alastair Miller, Hal (Bromsgrove) Tapsell, Peter
Gorst, John Mills, Peter Taylor, Teddy (Cathcart)
Gow, Ian (Eastbourne) Miscampbell, Norman Tebbit, Norman
Gray, Hamish Moate, Roger Temple-Morris, Peter
Grimond, Rt Hon J. Monro, Hector Thomas, Dafydd (Merioneth)
Thompson, George Watt, Hamish Wood, Rt Hon Richard
Trotter, Neville Weatherill, Bernard Young, Sir G. (Ealing, Acton)
Tugendhat, Christopher Welsh, Andrew
Walder, David (Clitheroe) Wiggin, Jerry TELLERS FOR THE AYES:
Walker-Smith, tit Hon Sir Derek Wigley, Dafydd Mr. Jim Lester and
Wall, Patrick Wilson, Gordon (Dundee E) Mr. Spencer Le Marcham
Warren, Kenneth Winterton, Nicholas
Allsun, Frank Garrett, John (Norwich S) Park, George
Anderson, Donald Gilbert, Dr John Parker, John
Archer, Peter Ginsburg, David Parry, Robert
Armstrong, Ernest Golding, John Pendry, Tom
Ashton, Joe Gourlay, Harry Phipps, Dr Colin
Atkins, Ronald (Preston N) Grant, George (Morpeth) Prescott, John
Atkinson, Norman Grocott, Bruce Price, C. (Lewisham W)
Barnett. Guy (Greenwich) Hamilton, James (Bothwell) Price, William (Rugby)
Barnett, Rt Hon Joel (Heywood) Hardy, Peter Radice, Giles
Bates, All Harrison, Walter (Wakefield) Richardson, Miss Jo
Bean, R. E. Hart, Rt Hon Judith Roberts, Albert (Normanton)
Benn, Rt Hon Anthony Wedgwood Hatton, Frank Robinson, Geoffrey
Bennett, Andrew (Stockport N) Heffer, Eric S. Roderick, Caerwyn
Blenkinsop, Arthur Horam, John Rodgers, George (Chorley)
Boardman, H. Hoyle, Doug (Nelson) Rodgers, William (Stockton)
Booth, Rt Hon Albert Hughes, Rt Hon C. (Anglesey) Rooker, J. W.
Boothroyd, Miss Betty Hughes, Mark (Durham) Roper, John
Bradley, Tom Hughes, Robert (Aberdeen N) Rose, Paul B.
Bray, Dr Jeremy Hughes, Roy (Newport) Ross, Rt. Hon W. (Kilmarnock)
Brown, Hugh D. (Provan) Hunter, Adam Rowlands, Ted
Brown, Robert C. (Newcastle W) Irving, Rt Hon S. (Dartford) Selby, Harry
Buchan, Norman Jackson, Colin (Brighouse) Sheldon, Robert (Ashton-u Lyne)
Buchanan, Richard Jackson, Miss Margaret (Lincoln) Short, Rt Hon E. (Newcastle C)
Callaghan, Jim (Middleton & P) Jay, Rt Hon Douglas Short, Mrs Renée (Wolv NE)
Campbell, Ian Jeger, Mrs Lena Skinner, Dennis
Canavan, Dennis John, Brynmor Small, William
Carmichael, Neil Johnson, James (Hull West) Snape, Peter
Clemitson, Ivor Jones, Barry (East Flint) Stallard, A. W.
Cocks, Michael (Bristol S) Jones, Dan (Burnley) Stewart, Rt Hon M. (Fulham)
Cohen, Stanley Kelley, Richard Stoddart, David
Coleman, Donald Kilroy-Silk, Robert Stott, Roger
Conlan, Bernard Lambie, David Strang, Gavin
Cook, Robin F. (Edin C) Lamborn, Harry Strauss, Rt Hon G. R.
Corbett, Robin Lamond, James Summerskill, Hon Dr Shirley
Cox, Thomas (Tooting) Latham, Arthur (Paddington) Thomas, Jeffrey (Abertillery)
Craigen, J. M. (Maryhill) Leadbitter, Ted Thomas, Mike (Newcastle E)
Crawshaw, Richard Litterick, Tom Thomas, Ron (Bristol NW)
Crowther. Stan (Rotherham) Loyden, Eddie Thorne, Stan (Preston South)
Cryer, Bob McCartney, Hugh Tierney, Sydney
Cunningham, G. (Islington S) McElhone, Frank Tinn, James
Cunningham, Dr J. (Whiteh) MacFarquhar, Roderick Tuck, Raphael
Dalyell, Tam McGuire, Michael (Ince) Urwin, T. W.
Davies, Bryan (Enfield N) MacKenzie, Gregor Wainwright, Edwin (Dearne V)
Davies, Denzil (Llanelli) Mackintosh, John P. Walden, Brian (B'ham, L'dyw'd)
Davies, Ifor (Gower) Maclennan, Robert Walker, Terry (Kingswood)
Deakins, Eric McMillan, Tom (Glasgow C) Ward, Michael
Dean, Joseph (Leeds West) McNamara, Kevin Watkins, David
de Freitas, Rt Hon Sir Geoffrey Magee, Bryan Watkinson, John
Dempsey, James Mahon, Simon White, Frank R. (Bury)
Doig, Peter Marks, Kenneth White, James (Pollok)
Dormand, J. D. Mrquand, David Whitehead, Phillip
Douglas-Mann, Bruce Marshall, Dr. Edmund (Goole) Willey, Rt Hon Frederick
Duffy, A. E. P. Maynard, Miss Joan Williams, Sir Thomas
Dunwoody, Mrs Gwyneth Millan, Bruce Wilson, Alexander (Hamilton)
Ellis, John (Brigg & Scun) Miller, Dr M. S. (E Kilbride) Wilson, William (Coventry SE)
English, Michael Morris, Alfred (Wythenshawe) Wise, Mrs Audrey
Ennals, David Morris, Charles R. (Openshaw) Woodall, Alec
Evans, Ioan (Aberdare) Murray, Rt Hon Ronald King Woof, Robert
Ewing, Harry (Stirling) Ogden, Eric Wrigglesworth, Ian
Fernyhough, Rt Hon E. O'Halloran, Michael Young, David (Bolton)
Flannery, Martin Orbach, Maurice
Foot, Rt Hon Michael Ovenden, John TELLERS FOR THE NOES:
Ford, Ben Owen, Dr David Mr. Ted Graham and
Fowler, Gerald (The Wrekin) Padley, Walter Mr. Joseph Harper.
Freeson, Reginald Palmer, Arthur
Question accordingly negatived.
Schedule 4

Mr. Robert Sheldon: I beg to move Amendment No. 213, in page 102, line 4, leave out 'wife' and insert 'spouse'.

Mr. Deputy Speaker

With this, we can take Government amendments Nos. 214, 215, 216, 212, 17, 20 and 21.

Mr. Sheldon

These amendments are purely consequential on Government Amendment No. 212 to Clause 34. We may have the debate on that amendment.

Amendment No. 17 concerns the premium relief by deduction scheme, which is to be introduced in 1979–80. Under the Bill as originally drafted it was intended that the ceiling for life assurance, one-sixth of an individual's income, should be replaced with a limit of £1,500 per annum. Due to an error in paragraph 10(b) following the decision at the Committee stage to restore the one-sixth of income limit as an alternative, the provisions covering allocation between spouses should now more properly be expressed as one-twelfth, or £750, for each spouse. This amendment carries out that provision.

Amendments Nos. 20 and 21 enable the industrial assurance companies to adopt schemes relying on the principle of the "increased sum assured." This is one aspect of the giving of premium relief by deduction. Many premiums are payable under industrial assurance policies in very small amounts, and as a result it is not suitable to deduct a certain percentage for the premium relief. It is not practicable because of the smallness of the premium payments. In order to meet their obligations and to provide for relief, it is more convenient to increase the sum assured and thus obtain the relief in that way. These amendments make provision for that.

Amendment agreed to.

12 midnight.

Mr. MacGregor

I beg to move Amendment No. 18, in page 102 line 25, leave out 'of assessment'.

Mr. Deputy Speaker

With this we may take Amendment No. 19, in line 32, at end insert— '(2) In this paragraph "year" means the twelve months beginning with the making of the assurance or contract and any subsequent period of twelve months'.

Mr. MacGregor

The background to this fairly technical amendment is that, as the House knows, under Schedule 4 a new arrangement is being proposed for the deduction of life assurance premiums which will effectively move quite a large part of the administrative burden away from the Inland Revenue and on to the life assurance companies. Anything which can reduce the administrative burdens on the companies is very desirable.

The amendments help to make some reduction in the administrative burden. They are trying to make the definition of the year for tax purposes that of the first year and subsequent years of the contract, rather than to put it into the tax year itself.

The importance of this is that, because under paragraph 6 certain changes can be made in the deductions that have to be made by the life offices, this means that in one or two cases where there are policies payable by periodical premiums —that is to say, on a monthly basis—if the premium had been taken out three-quarters of the way through the year and was a premium for more than £1,500 the insurance company would have to make a different deduction from the one it would normally make. In the end the deduction will be the same.

All that this is seeking to do is to reduce the administrative burden on the life companies so that they effectively have to make only two deductions, either 17½ per cent. or nil. I believe that the amendment would be acceptable to the Government, because they recognise the importance also of doing all that is possible to diminish the burden on the life companies.

I wonder whether we could not go a little further in assisting the life offices and remove paragraph 6 altogether. I hope the Financial Secretary will give some thought to this. Paragraph 6 was necessary in the Bill as it originally stood because there was a cut-off point of £1,500. We have since had this very welcome change as a result of our pressure, as well as that from elsewhere, which has led to the Government accepting that in cases where the one-sixth income which applies will be higher than the £1,500 it will once again be possible for the taxpayers to go back to the limitation of one-sixth income. With that situation the position in relation to paragraph 6 alters.

The Bill still contains in paragraph 14 a sub-paragraph which enables the Revenue to order the life office to accept only gross premiums. Therefore, there is still some safeguard. But the removal of paragraph 6 now would mean further administrative savings for the life offices, in precisely the same way as Amendments Nos. 18 and 19 would achieve, because it would remove some of the need for the life offices to make yet further assessments and deductions other than 17½ per cent. and the nil per cent.

I recognise that this is a highly technical point but it is of great importance to the life offices. There may well be some savings for the Revenue in removing paragraph 6 as well, particularly bearing in mind that the vast majority of those paying an annual premium on a policy of over £1,500, to which paragraph 6 refers, will be within the one-sixth limit which the Government have now conceded. So I hope that the Minister will be able to accept Amendments Nos. 18 and 19, which, though technical, are helpful to the life offices. It would also be extremely helpful if later the hon. Gentleman could consider going even further and removing paragraph 6 altogether.

Mr. Hugh Dykes (Harrow, West)

I wish to support the proposition, which in my view is entirely reasonable and which I hope, therefore, will be acceptable to the Government.

With regard to the plea for the removal of para. 6 of the schedule, perhaps I might add a point which is germane to it, though perhaps a slight variation on it in respect of such policies and the maximum amount of contribution which may be made.

If the Minister will cast his mind back to 1956, taking a maximum contribution of £750 per annum limited to 10 per cent. of net relevant earnings, he will recall that special provision was made for persons born prior to 1916. The background assumption behind this was that a man of 40 in 1956 had 25 years to contribute to an annuity before the normal retirement age of 65 and that that should be adequate, given the requisite sufficiency of earnings over that period. The special provisions were, therefore, limited to those born prior to 1916.

Since then, we all know the familiar story of currency debasement, savage inflation and loss in real monetary values. This has now been recognised, although tardily, in that the contribution limits were revised back in 1970 and now again in the present proposals in this Bill.

But surely the special provisions should also be adjusted. These are still limited to persons born prior to 1916, in accordance with background assumptions made 20 years ago, in conditions of relative currency stability, under a highly successful Tory Government who remained in office for 13 years, which are now totally unrecognisable.

This could be done easily and be limited to a specified number of years either by advancing the years forward from 1916 or by permitting contributions by older persons in the appropriate category to be made retrospectively up to the adjusted limits.

Let us take the case of the self-employed person aged 40 in 1956 earning consistently high earnings enabling him to pay the maximum annual contribution. For an annual contribution of, say, £750 —half the maximum now allowed—any leading reputable insurance company in those days would have granted a without-profits policy, which was the familiar way of arranging these matters, giving a gross retirement annuity of £2,860 from the age of 65, guaranteed for five years. This contract would not have made any real provision for a surviving spouse, which is a relevant point. In 1956 it was considered normal and wise to take out a without-profits policy. In the retirement context, people like to know where they stand. In terms of joint and last survivors of retirement annuities, one could not have a with-profits policy in respect of the spouse at that time.

If we take the following 15 years until the next change in 1970 and 1971, this was all that could be done, whatever the endeavour and success reflected in the earning capacity of the person concerned. Fifteen years is almost two-thirds of the way through the 25-year period envisaged in the original background assumption. The years of age 40 to 55 embrace a person's maximum earning capacity in virtually every case.

The problem is at last realised by the current proposals to raise the upper age limit for which an annuity must become payable from 70 to 75.

If the Minister will agree with what my hon. Friend the Member for Norfolk, South (Mr. MacGregor) said and express his support for the proposition which I have advanced, I and others will be extremely grateful to him.

Mr. Robert Sheldon

You would not expect me, Mr. Deputy Speaker, to reply to an amendment which was not selected. I took note of the hon. Members points, I will read them in Hansard tomorrow, and take up the matter with him.

On Amendments Nos. 18 and 19, I noted the contribution of the hon. Member for Norfolk, South (Mr. MacGregor). He made the perfectly reasonable point that the year of assessment should be the policy year, rather than the tax year. I have a great deal of sympathy with this position, and I think it makes a useful contribution which is to the advantage of the insurance companies and does not disadvantage anyone else. I am happy to accept the precise nature of the amendments as drafted on the Notice Paper.

Amendment agreed to.

Amendments made: No. 19, in line32, at end insert— '(2) In this paragraph "year" means the twelve months beginning with the making of the assurance or contract and any subsequent period of twelve months'.—[Mr. MacGregor.]

No. 214, in line 34, leave out paragraph 7 and insert— '7. Subsection (7) of section 19 shall be omitted.'.

No. 215, in line 39, leave out 'wife or husband' and insert 'spouse'.

No. 216, in line 40, leave out 'wife or husband' and insert 'spouse'.

No. 17, in Page 103, line 10, leave out from 'substituted' to end of line 15 and insert— 'in relation to each of them, a limit of £750 or one-twelfth of their coal income, whichever is the greater, plus any amount by which the payments in respect of which relief can be given to the other fall short of the limit so substituted'.

No. 20, in page 104, line 19, after 'premiums', insert— 'or that, in the case of such policies or contracts issued or made before 6th April 1979, the amounts expressed as the amounts of the premiums payable are treated as amounts arrived at by deducting 17½ per cent. from the amounts payable and that the amounts of the capital sums assured or guaranteed are treated as correspondingly increased'.

No. 21, in line 23, at end insert— '(3A) Increases treated as made in pursuance of regulations under this paragraph shall not be treated as variations of a policy or contract and shall be disregarded for the purposes of section 332 of and paragraph 4 of Schedule 1 to the Taxes Act and section 7(6) of the Finance Act 1975; and the regulations may include such adaptations and modifications of the enactments relating to friendly societies or industrial assurance companies and such other incidental and supplementary provisions as appear to the appropriate authority necessary or expedient for the purpose of enabling such societies or companies to adopt the schemes authorised by the regulations.'.—[Mr. Robert Sheldon.]

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