Earned and Unearned Income

HC Deb 24 February 1977 vol 926 cc1607-9

1. Mr. Dykes

asked the Chancellor of the Exchequer what plans he has to abolish the different treatment of earned and unearned income for tax purposes.

The Chief Secretary to the Treasury (Mr. Joel Barnett)

None.

Mr. Dykes

In view of that answer it may be wrong to congratulate the right hon. Gentleman on proceeding to the Cabinet. Is he and his right hon. Friend not aware that these absurd, crude and anachronistic distinctions between earned and unearned, or investment, income do not exist at all at the more modest levels of income, or starting levels, in other modern industrial countries? Why should they persist in this country when so many people of modest unearned income are now hard-pressed with inflation? Should not this distinction be abolished in the next Budget?

Mr. Barnett

I disagree with the hon. Gentleman in what he said. All Governments in the past have kept this distinction between the two types of income. When the hon. Gentleman talks about the lower levels he will know that is one of the reasons why we have a higher level for pensioners and why widows or wives who are being maintained get a higher level. As a result, the vast majority of them are aready excluded from the investment income surcharge. I do not accept the point that the hon. Gentleman made, that one needs to have the two types of income treated alike.

Mr. Jay

Is my right hon. Friend aware that countries which do not make this distinction in terms of income almost invariably have a wealth tax, coming down to very low levels?

Mr. Barnett

I, like my right hon. Friend and the House, am aware of the valuable work that my right hon. Friend has done as Chairman of the Wealth Tax Committee. We hope to be able to deal with this matter in the not-too-distant future.

Mr. David Howell

Will the Chief Secretary accept our congratulations on his elevation to the Cabinet? We do not always agree with everything that he does, but we try to support his efforts on public expenditure, which is more than can be said for some of his so-called supporters on the terraces behind him. With regard to unearned income and its treatment, may I ask about Government policy on dividend restraint? Is he aware that this should be done away with, because it is damaging to the pensions of millions of working people and millions of households? Is it not time that this nonsense was ended, in the interests of a better flow of finance and investment?

Mr. Barnett

I am obliged to the hon. Gentleman for the first part of his question. With regard to the latter part, I hope that he will recognise that kind words from anyone in the past three years have meant that I have not been able to meet them in my customary manner. If We want this country to have a sensible incomes policy, dividend restraint is a part of it.