HL Deb 04 November 1943 vol 129 cc528-48

Order of the Day for the Second Reading read.

THE LORD CHANCELLOR (VISCOUNT SIMON)

My Lords, I rise to move the Second Reading of this interesting and intricate Bill. Your Lordships will not desire me to explain all its details, but possibly those of your Lordships who are good enough to stay to listen to me would like to have a short statement of a more general character explaining the purpose and effect of this novel measure. You will be aware that the existing system of Income Tax which has been elaborated in this country proceeds, broadly, by the method of collecting the tax upon income at a later date than the date when the income is received. There are two well-known illustrations. Under Schedule D Income Tax on the profits of a profession, trade, or business, as everyone knows, comes to be paid at a figure which is arrived at, not by seeing what the profit is in the year of payment, but what it was in the year before. In the same way, with the exception of servants of the Crown, under Schedule D the tax is paid on salaries and the like at a time when it is due, on a figure which is arrived at from the receipts of the year before. That is the well-established system we all know, and it is one which has some quite considerable advantages. It has the great advantage, in the first place, that you are able to work out the tax by reference to ascertained facts, and have not got to rely on estimate or prophecy. That is certainly an advantage. It has the advantage, too, in some cases, especially as regards salaries, that a man who is on salary, and is getting periodic increments, pays tax this year on what his salary was last year, and therefore sometimes is the gainer by the increment before it is taxed.

That has been our general principle for a very long time. When, during the last war, special arrangements were made in the Finance Act of 1916 for the taxation of the incomes of manual wage-earners, so far as their income was above the exemption limit, the same principle was applied, though with certain differences of detail. What was done was that you took a period of six months—say, April to the end of September or, strictly speaking, October 5. You ascertained, when that period was over, what the particular wage-earner had received as wages in that six months. When you had ascertained that, the Inland Revenue authorities, taking into account all the other factors that were necessary, proceeded to decide what was the amount of tax which that past six months of earnings justified. Thereupon the tax became due from the wage-earner—as a matter of fact on the following January 1. At first the wage-earner was asked to pay himself directly, though there were arrangements, as your Lordships will remember, for putting stamps on cards and other things in order to spread the burden. Then, in 1940, my friend and colleague, whose death we all deplore, Sir Kingsley Wood, made a change which I think was greatly appreciated. He provided for the first time that in the case of the manual wage-earner the tax should be deducted by his employer out of wages. That had not been done before. But it was still true, even after 1940, that the tax which the employer deducted was deducted under the directions of the Inland Revenue in respect of a past period of earnings. That is the system which exists at this present moment.

Now comes upon the scene a new idea which goes by the name of "pay as you earn." It certainly is a very attractive suggestion but, as I shall briefly point out, it is far more difficult to put it into practice than many sanguine people at first supposed. The idea is this. In the case of the weekly wage-earner, for example, why is it not possible to deduct a suitable amount in the name of Income Tax week by week as the employer pays the wages, when of course the employer will account for what he has deducted? At first sight it sounds quite simple, but as a matter of fact it is very complicated, and it involves two difficulties which I think it would be interesting to the House if I were very briefly to explain. The first is this. There are a very large number of people in this island who, speaking in quite general terms, imagine that everybody pays Income Tax at 10s. in the pound. If I confine myself to individuals—it is not quite the same with limited companies— no individual in this country pays Income Tax (leaving out of account Surtax for the moment) at exactly 10s. in the pound.. The individual with the smallest income pays no Income Tax at all. Just when you pass the limit of complete exemption you pay Income Tax on the small balance, which may work out to only a few pence in the pound. The rate of effective Income Tax, measured in proportion to the total income, is not a fixed rate; it is not a line drawn at the standard of 10s. in the pound so that everybody's income is cut in two, one half going to the State and the other half going to him. Not at all; the curve of effective Income Tax is a very carefully drawn and tapering curve. Those of your Lordships who may retain an interest in mathematics may be charmed to know that the curve of effective Income Tax is very nearly what in Conic Sections you call a hyperbola—that is to say, it is a curve that goes on getting higher and higher, and is always approaching the line of 10s., which mathematicians would call the asymptote. But the curve will only touch the asymptote at infinity. Therefore, it is only a man who is infinitely rich who ever actually pays 10s. precisely in the pound in Income Tax! That, I trust, is some comfort to some members of your Lordships' House.

Putting the matter in more ordinary language, the reason why Income Tax is graduated in this way is of course because of the most elaborate system of exemptions and allowances which is in force. To begin with, anybody who has not got a personal income of £110 a year pays no Income Tax at all. Even if he pays on more than that, he does not pay on the whole of his income. If he is a bachelor he does not pay on the first £80. If he is a married man he does not pay on the first £140. If he is a married man with children then for each child under a certain age there is another £50 of his income which is not subject to tax. If his income is earned income and is not above £1,500 a year, then he is treated as if his total income was nine-tenths of what it really is. If he earns £1,000 a year, then he is treated as if he earns £900 a year. Then there is the provision by which the first slice of taxed income is, I think, 6s. 6d. in the pound and there are provisions in respect of life insurance and other things of that kind. The effect of all that is that you will not succeed in working out "pay as you earn" if you tell all employers to deduct the same proportion of wages from every individual who is paid by them. There is a most complicated calculation which has to be made.

That is one reason why this is very difficult to carry out. The other reason is this. At present, as I have pointed out, we all of us, including those manual wage-earners who come above the Income Tax exemptions, are paying Income Tax in respect of a figure calculated by reference to past income. There is a lag in the case of wage-earners. It is a lag in practice, I think, of about ten months; in the case of salaried people it may be a lag of some seven months; but there is a lag. The day that you introduce this new principle of "pay as you earn" you will necessarily be calling upon the wage of the week to bear the tax appropriate to that payment then and there; but there has not yet been paid the Income Tax in which the Inland Revenue has a vested interest for the period of the lag. They are waiting for it and therefore you are in the difficulty that there is a considerable amount, millions and millions, not yet paid to the Inland Revenue because not yet due, but which is, under the present law, liable to be paid in respect of past income, and at the same time you will be putting on top of that the amount you will deduct for Income Tax calculated on payments up to date. There is only one solution to that, and it is surprising to me that the country has not observed this rather remarkable feature of the situation, that in order to introduce this new system the Revenue authorities appear to be showing a generosity not usually attributed to them. Note that the Inland Revenue is doing this; it is abandoning all right to the Income Tax in respect of which there is at present a lag. I will not pause to consider whether there may be other considerations which affect the Chancellor of the Exchequer's mind, but that is the fact and that is the second difficulty.

As regards the first difficulty, how is it to be got over? Obviously it cannot be got over by telling each employer to deduct week by week a certain fraction of the wage. Consider the case of two employed persons, each earning £5 a week from an employer—they are perhaps working at the same bench. But you will get the thing all wrong if you imagine that there must be the same deduction in respect of Income Tax (the same number of pennies or shillings) in respect of both workmen. For one workman may be a bachelor, and the other may be a married man with children, and with all sorts of claims, with the result that the amount to be deducted from him will be less than the amount deducted from his companion.

I must say I greatly admire the ingenuity with which this has been worked out. Immense credit is due to all concerned. The plan is this. The new arrangement will only come into operation in the new financial year which begins on April 6 next. In the meantime the Inland Revenue authorities are going to have plenty to do. They are working out a whole series of tax tables, taking every possible permutation and combination of the various factors which I have indicated for different rates of wages, and the result is that before April 5 next they will be able to supply employers, who may have a hundred or a thousand workpeople on the pay-roll, with the necessary information by which they will know what is the right amount to take from each workman. This will be done by what I think they call a series of codes. There will be one code for the married man with three children, another worked out for the married man with two children, another worked out for the man who is a bachelor, and so on. These codes will be all numbered and the big employers will be given what I am told is rather like a telephone book, and they will look up, in the case of each of their employees, what is the right deduction according to the code which they are told to apply to that man.

All the calculation work will be done by the Inland Revenue and all that employers will have to do is to search the code book and apply it as directed. That is an enormous advantage. Of course, if a mistake is made there will be arrangements to correct it later on. Many employers who were sympathetic to this plan for some purposes, have been considerably alarmed at the prospect of having to make all sorts of calculations themselves. They will not have to do that. In the case of individuals employing one or two people only they will not need these elaborate codes, but they will have a card to tell them the proper deduction to make. This ingenious plan is not limited to trying to get the right tax in respect of a particular week when payment is made, but it also takes into account cumulative payments up to the present week so that you get a correction going on all the time in respect of the past period from the beginning of the fiscal year. For example, if workpeople fall out of work because they are sick or for any other reason, that will reduce the total amount of income for the year and if that is so the amount of tax due from them will be less. There has then to be an altered deduction and arrangements are made to provide for that.

I think I have said enough to show, first, that this is a very ingenious plan, and secondly, that it must be a great satisfaction to those who conduct British business that it does not require a special staff of clerks or a special committee of directors to work out all the details. It applies in the first instance to those who are called manual wage-earners, which for practical purposes means people engaged in industrial work whose remuneration is paid by reference to a week or a fortnight or something under a month. Included in the Bill also are other wage-earners and the less well-remunerated people in receipt of salaries. The argument is that if you are going to do this for skilled workmen or for foremen because they are paid wages, there is no reason why you should not do the same thing for a man who receives a salary of about the same amount. Therefore the Bill applies also to those receiving salaries not greater than £600. They also will find that they will pay as they earn. Beyond that, the Chancellor of the Exchequer has promised, as your Lordships will no doubt have noticed, that since there is no scientific merit in stopping at £600 a year, he will in a future Finance Bill extend this arrangement to all salaries, however large, with some very necessary safeguards.

That, therefore, is the general nature of this proposal. Your Lordships will, of course, see that it cannot be applied—at least I do not see how it can be applied— to Schedule D. You cannot apply it to Income Tax charged on professions or trades, because until you come to the end of the year you do not know what is the amount of the profit. All the same, it is a very interesting technique which I am glad to have had the opportunity of explaining to the best of my ability, and it is one on which, I think, we may really pride ourselves. There are considerations, no doubt, the other way. There is something to be said for the other system, but there is no doubt that this is most earnestly desired by those particularly concerned. It will certainly do them no injury. It is going to ensure better collection and it is going to make the time of payment of tax correspond with the time of payment of wages. I move the Second Reading of this Bill, well assured that your Lordships will approve what in this matter the Chancellor of the Exchequer and the House of Commons have done.

Moved, That the Bill be now read 2a.—(The Lord Chancellor.)

LORD PERRY

My Lords, after the very eloquent explanation of this Bill which has been given by the noble and learned Viscount on the Woolsack I find myself in a position of some embarrassment in trying to point out to you what are the difficulties contained in this plan which he dismisses as an ingenious plan. It certainly is a very ingenious plan, but ingenuity frequently is a most awkward thing and one sometimes finds oneself in trouble when trying to work in accordance with it. So that I may make clear to your Lordships what I have in mind I shall have to repeat a little what the Lord Chancellor said about the history of this pay-as-you-earn method. It was conceived and first put into practice under the terms of the second Finance Act of 1940. That Act was passed, I think, some time in the autumn of 1940, but so far as wage-earners are concerned the deductions were first made in January, 1941. As the Lord Chancellor has explained, the deductions were based upon past earnings and obviously had very little relation to the amount of money from which the deductions were made. The fact is that last year's earnings may have no relation to this year's earnings. It did not take very long to discover that there were many difficulties in the administration of this particular plan.

I have read with great care the reports of the debates in another place, which took place both on the Second Reading and during the Committee stage of this Bill, and on Tuesday last. I do not think that there exist in the other place, or in this country generally, any objections to the principle, the pay-as-you-earn principle, of the plan itself, whether it is extended, as is most necessary, to the worker who does not know anything about his yearly income at all but knows only what he has in his pay packet to take home on a pay day, or whether it is extended, as the Chancellor of the Exchequer has said that it shall be extended, over the whole range of Schedule E Income Tax payers. As I reminded your Lordships, it was in January, 1941, that the first attempts were made to put this plan into execution. By April, 1942, the administrative difficulties had been so thoroughly brought home to the powers that be that there was published a White Paper which is most eloquent special pleading to excuse the prevailing system of having to calculate pay-as-you-earn Income Tax on the previous year's earnings. Speaking from memory, I do not think the White Paper says that it was impossible, but it was the opinion of the Treasury officials in April, 1942, that from a practical point of view it was not feasible at all to collect tax except on the plan then being administered and, as proposed, slightly modified.

Under the Finance Act of 1940, the Commissioners of Inland Revenue have, of course, the right to make regulations, and they were given the right to impress into their service, without any form of remuneration, all employers as amateur tax collectors. The White Paper discloses that there are, in fact, about 125,000 of these amateur tax collectors now engaged in collecting pay-as-you-earn Income Tax on behalf of the Government. It was found that the incidence of earnings made it unfair to certain classes of people that the period of assessment of past earnings should be as had been practised up to then, and the procedure was changed after only eighteen months of experience. It did not take very long to prove that what was being attempted was not practicable.

The White Paper was published in April, 1942, and in July, 1942, there was given what was popularly known as a month's tax holiday to wage-earners, and no tax was deducted from wages paid in the month of July, 1942. Whether that was really and truly a month's holiday in terms of money has never been disclosed. Certainly, as one of the amateur tax collectors myself, I do not know, because that month was occupied by the Inland Revenue officials in working out a new schedule which came into operation for tax deduction in August, 1942. Whether they added to it what they had not collected in July, 1942, or not I am not able to say. If they did not, if, as the noble and learned Lord Chancellor has pointed out is proposed at the present time, they forgave the Income Tax for the month, then there was a loss to the Treasury of about £10,500,000; that is, one-twelfth of £125,000,000, which is what the White Paper states is the amount of the annual receipts from this particular class of Income Tax.

Well, this procedure was introduced in July, 1942, and by September, 1943, we had delivered to us another White Paper Which told us that still the scheme did not work. It is not practicable; it is not satisfactory, and there is a great deal of grumbling. The White Paper discloses, among other things, that there is a possible bad debt, which I calculate to be some £62,500, by reason of non-remittance of tax deducted by employers from wage-earners. In other words, the working of the scheme was unsatisfactory, and the consequence was that in September, 1943, we were presented with another White Paper which forecast the Bill which is now before your Lordships' House for consideration. Therefore, it was. hoped that what was apparently, or pronounced to be, unfeasible or almost impossible, was, by some scheme of ingenuity, to be made possible and at a sacrifice about which the noble and learned Lord Chancellor has told your Lordships. He did not tell you the amount, but the amount is £250,000,000 gross as applied to wage-earners, and £10,000,000—net or gross I cannot say, because it has not been disclosed—as applied to the £600 a year salary earners. So that in these experiments that have been made in respect of the collection of tax, over so short a period as I have mentioned, there have been a succession of losses, and now we are presented with a new and ingenious plan which it is hoped will succeed.

I certainly endorse everything which the noble and learned Viscount who sits on the Woolsack has said concerning the application and ingenuity of the Inland Revenue authorities. I think that they ought to be congratulated. They are a body of very excellent public servants who are always polite and attentive, and who are grossly overworked. As I have pointed out, they have called to their assistance 125,000 of us to help them to do their collecting. As industrialists, we have found this an irksome business, particularly as at this moment, when the country is finding it necessary to call up children of 16 years of age and women of 50 to register for national service, there is very great difficulty in getting labour, and especially competent labour. I have made inquiries amongst my friends and in my own institutions as to the additional labour required to work the plan proposed in the present Bill. It will mean in man-hours anything from 15 to 25 per cent. additional to the labour already expended in the collection of the pay-as-you-earn tax under the present system, and I have no idea where the labour is to be found. Perhaps your Lordships may have some idea, but I do not think that the Chancellor of the Exchequer has any idea whatever; he politely refers employers to the Ministry of Labour. As I have said, when children of 16 are having to register for national service there is a very great shortage of labour, and for that reason alone this plan is bound to break down. There will be omission to deduct; there will be omission to pay; there will accrue an inevitable time-lag which, expressed in terms of money, may amount to something approaching the £250,000,000 which has been already forfeited.

The noble and learned Lord Chancellor said that if a mistake is made, of course it will be corrected—that is, a mistake made by these 125,000 amateur tax collectors, all of whom, in addition to anything that they have done in the past, will be required to make one addition and one subtraction sum for every one of about 6,000,000 taxpayers per week. The chances of human error in making such calculations are, of course, enormous. They have been foreseen by our ingenious Board of Inland Revenue, who tell us that they will employ a staff of itinerant advisers and auditors—incidentally it is hinted that they will also be "snoopers" —in order that we may have guidance in this task. At the end of the twelve months, the record of all these accumulated mistakes will be turned in to the Inland Revenue for the purpose of correction. And the noble and learned Viscount has told us that if there is a mistake it will be corrected. I can assure your Lordships that there will not be merely one mistake or a thousand mistakes; there must inevitably be tens of thousands of mistakes, and it is very much harder to correct a mistake when it has been made than to avoid making it in the first instance.

I am afraid that I am detaining your Lordships for an unduly long time. In the course of the debate in another place, it was asserted by the Chancellor of the Exchequer that this volume, which has been described as a sort of telephone directory, would comprise something like five thousand pages of tables and so on. That was corrected by the Financial Secretary, who admitted that there would be a minimum of one thousand pages. This production will be anything, therefore, from one to five thousand pages, and will have to be referred to by the employees of 125,000 collectors in respect of 6,000,000 people every week. To work any scheme of that sort is hopeless, and to talk of working it is almost ludicrous, particularly in view of past experience. There is an old adage, "Once bitten, twice shy." We have been twice bitten already over the application of this method of collecting tax on a pay-as-you-earn basis, and this third attempt, I am sure, will be more disastrous than any of its predecessors, for the simple reason that it relies on untrained lay assistance which is not available.

If I may be domestic and cite my own case so far as the White Paper and the examples given are concerned, we do not know what all these tables will be; they have not been published yet, and no one outside the inner circle has seen anything of them. I have had some personal experience, however, regarding the collection of wages. As the number of my employees began to run from hundreds into thousands, before the last war, I conceived the idea that it would be an economy, and keep my staff more regularly employed, if I could pay my workpeople who were paid on an hourly basis once in every two weeks instead of once a week; because the pressure of work at the end of the week when the payment is made weekly is very great. I thought that if I were to pay each man every two weeks, paying A this week and B the next, I could keep my staff more uniformly employed. There was great difficulty in doing that, and I take a certain amount of credit for what was a social service, because we found that, although we were paying fairly good wages, a very large number of our men could not finance themselves for two weeks, and we had to adopt a system of what we call in industry "subbing." Your Lordships may not know of any such practice, but I am sure that it exists amongst the lower classes. It took us twelve months to educate the men up to being able to finance themselves for two weeks.

To-day we have no such trouble. Any one amongst the 35,000 daily workers for whose employment I am responsible, any one who seeks employment with the institutions of which I am chairman, knows quite well that, although his wages will be calculated by the hour, he will be paid only once a fortnight, and it will not necessarily be on a Thursday or a Friday; it may be on a Monday or a Tuesday or a Wednesday; in fact, it may be any day of the week. How we have done that will, I am sure, appeal to your Lordships at once as being very reasonable. We have a permanent staff of pay clerks. We calculate the wages of the men to be paid on the Monday, the Tuesday, the Wednesday, the Thursday and the Friday, and we are therefore able to find the necessary labour and get our work carried out.

According to the White Paper, no provision is made for that sort of thing, and so the Inland Revenue will have to produce some more tables dealing with what is to happen to a man when he has his pay-as-you-earn tax deducted once a fortnight instead of once a week. Those of your Lordships who have looked at the White Paper will have seen the tremendous difficulty about the deductions, and the quite inexplicable deductions which will have to be made. The Financial Secretary said in another place that he could not explain them. I have talked about them to many of my friends, and we are quite unable to understand them. They vary tremendously. When they have to be multiplied for those employers who, like the institutions to which I have referred, pay wages once a fortnight, we are going to have not one "telephone book" but two to which to refer, and on the basis of which to make our calculations.

I have spoken at much greater length that I had intended, but I believe that the intrinsic mistake which is made by the Inland Revenue and Treasury authorities is that they regard Income Tax as though it were an annual tax. They have made it in its incidence into an annual tax. It is, of course, a graduated tax. It starts, as the noble and learned Lord Chancellor explained, from zero and rises until it reaches, with Surtax, 19s. 6d. in the pound at the highest level. It is therefore a graduated tax, and it is a poundage tax with a different interpretation all the way up. I believe firmly that the Victorian principle of a hundred years ago was perfectly good when Income Tax was first applied as a regular institution in our system of government. But I wish people would realize that we are living in the middle of the twentieth century, with conditions very different, and that Income Tax to-day is not a tax on annual income at all but is a tax on wages. It should not be complicated by all these deductions and allowances, but the deductions and allowances, which are certainly necessary in equity to adjust the position of, we will say, a single man as against a man with five children, should be made as a matter of separate concern altogether. I cannot conceive of having to make a return of the number of glasses of beer that one has drunk or cups of tea that have been consumed, to an Inland Revenue authority, even by anticipation beforehand or by experience afterwards so that the tax might be placed on a new basis in respect of these particular items of food. And it is to-day just as out of date to talk about taxing on an annual basis what is earned on a weekly basis; the variations are so complicated that it is a matter of impracticability. The Government might take notice that I am not alone in regarding Income Tax in the case of the manual worker as not being an annual tax at all. It should be approached from the point of view that it is a tax on wages, and any allowances that are made to meet the cases of big femilies, or other individual circumstances, should be dealt with entirely separately.

LORD SEMPILL

My Lords., I would like to support what my noble friend Lord Perry has said, and to join with him in expressing appreciation to the noble and learned Viscount on the Woolsack for the extremely interesting remarks that he made in introducing the Second Reading of this Bill. As the noble and learned Viscount pointed out, the pay-as-you-go scheme will be warmly welcomed, and could with advantage be extended at a later time. The new scheme certainly meets the needs of the weekly wageearner, except of course, as has been pointed out, that he cannot check the tax deducted each week; and owing to the tax being calculated on the accumulated gross wages to date in any one week, it is possible for a taxpayer to have varying amounts of tax deducted from the same wage figures. I appreciate that it is proposed to correct this by the Income Tax authorities issuing retrospective assessments.

From the employers' angle the scheme may be well understood from a study of the White Paper, but those who have formulated the scheme have failed to appreciate the immense strain that will be placed on the executives of large organizations to operate it. Statements to the contrary, I respectfully suggest, are just wishful thinking. Your Lordships will be aware that most firms pay weekly wageearners on the basis of anything from two to six days lying time. Whatever the lying time, however, firms only with difficulty produce this pay-roll on time each week under war conditions, and then with but an hour or two to spare. The work of compiling a pay-roll must be spread over the week as far as possible. This surely is fundamental. Generally, weekly wage rates and deductions are prepared by hand or machine in advance of information being received as to hours worked. In small factories with, say, up to 300 hands, the scheme could prove workable, but over that it becomes a task of a magnitude gradually increasing until it becomes, under conditions prevailing to-day, an intolerable burden.

Take as an example one of the most up-to-date factories in this country, producing that famous aircraft engine with which the Battle of Britain was won. That particular factory employs some 20,000 persons and the pay-roll system, like the engine it produces, is unsurpassed for excellence. What is the additional work required to be performed by that factory with 20,000 hands? First, 20,000 Income Tax deduction cards have to be hand-picked from the files; secondly, 80,000 clerical entries have to be made thereon; thirdly, mentally some 40,000 additions to or subtractions from those figures have to be made; fourthly, 20,000 references have to be made to a bewildering array of tables; and fifthly, 20,000 entries of the tax deducted have to be made on the pay cards. All this has to be done in this particular organization between Thursday morning and Wednesday evening. The staff to-day is working very efficiently and effectively to full capacity, but to handle the work involved by the pay-as-you-go scheme will mean another 500 man-hours per week, or 30 more assistants in that executive for two days only in the week. But industry cannot shoulder it. It is but another example of Parliament proposing a plan without visualizing the immense impact of science and technology on our daily lives. In this case the effect on factory control will throw an intolerable burden on industry.

Surely we must remember that nearly all war-time factories are fully or partly mechanized, so far as their pay-roll scheme is concerned. The new scheme does not lend itself readily to mechanization. In any case the providing of such additional office machinery is not feasible. What, therefore, is the result and what is to be proposed? A bottleneck has been introduced into pay-roll production. Of that, I think, there can be no doubt. If, therefore, the Government force this particular scheme through, millions of man-hours will be required to make it work and, as my noble friend Lord Perry has pointed out, those millions of manhours cannot be found. What, therefore, is the answer? I suggest, with all deference, that an immediate inquiry should be instituted with a number of the senior executives of the larger firms, whose experience will enable a workable scheme to be evolved. Such a scheme, in fact, already exists; some of your Lordships may have seen it. I have certainly studied the scheme very carefully, and say without fear of being contradicted that it will make the pay-as-you-go scheme work to the satisfaction of all parties concerned.

VISCOUNT MAUGHAM

My Lords, I should like to add something to what has fallen from the noble Lords who have just spoken. I do so with great diffidence, because I have no personal experience of the employment of large numbers of employees. Speaking generally, I hope that the Government will think fit to devote a great deal of consideration to the criticisms of my noble friend Lord Perry, which seem to me to have great weight behind them. I would not have intervened at all except that I know that the Government have to introduce another measure to perfect the present measure, as they have already announced, either in the next Finance Bill or in some independent piece of legislation. Before that comes on I should hope that the Government would consider very carefully the tremendous difficulty which arises in these times, when so many people are engaged in war work, of obtaining the clerical assistance which will be necessary to make this scheme a practicable one while the war lasts.

Many illustrations might be given, but I shall give only one. As your Lordships are aware, deductions from the tax payable depend upon the number of children which a particular employee has got. Children may be born at any date in the year. The system embodied in the Bill and explained in the White Paper is that immediately after the birth of a child to an employee the amount of tax to be deducted or refunded in the week has to be indicated on his pay ticket and will affect the amount payable to him on pay day. How is that to be done immediately? It cannot be done. When a child is born you have three weeks in which to register it. The fact that a child has been born has got in some way to reach the employer whose duty it is to make the deduction. If he looks at the elaborate system of figures which is going to be given to him by the Government, he will find that he has got to make the amount of deduction which is shown in Example C in the White Paper dealing with the case of an additional child born to an employee on January 23, 1945. He ought to make his alteration in the figures at once, but he will not know in the ordinary way for a period not less than three weeks after the birth of the child, so that his figures will be wrong for at least two weeks after the birth of the child and probably longer. The fact that the child has been registered may not come at once to the employer's notice, though it may be there is machinery under which he may be told of it.

I have been dealing with the case of the birth of a child, but, mutatis mutandis, one ought to consider the more lamentable case of the death of a child, or marriage, or the death of a wife. All these things are going to affect the figures, and are going to cause a vast number of small mistakes in them week by week. They are never going to be quite right. I am not a pessimist here. This is probably an early shot made by the people engaged in this most ingenious system, but I suggest as an alternative something like what was suggested by a member in another place, which would at any rate greatly minimize the arithmetical troubles of the clerk who has to get out these figures for the purpose of the employer whom he is serving. What I suggest is that instead of these sums for deductions or refunds being inserted week by week on the pay ticket of the employee, there should be deducted in the first instance precisely the sum calculated as the proper deduction at the beginning of a quarterly period. Take one of these particular examples—it is Example B on page 16 of the White Paper—where a man has a gross pay during the week ending April 12 of £9 16s., and the sum deductible from that is £1 18s. The practical way of dealing with that is to say to him: "In this first week you have £1 18s. deducted from your gross pay. That sum we are going to deduct from you week by week during the whole quarter At the end of the quarter we are going to tell you whether we have deducted from your pay too much or too little, and how much it is. If we have deducted too much, we are going to make a refund to you. If we have deducted too little, we are going to adjust that by taking it from you in the next quarter by an arrangement spread over the quarter."

The point of that is purely arithmetical; it is nothing else. There are ninety-one days in a quarter, and the clerk will be engaged in only one sum—namely, at the end of the quarter, working out the figure of excess or deficiency of deduction as the case may be. That one sum can be done very much more quickly and easily than if there were ninety-one sums to be done in making out the pay ticket of the employee under the system which is involved in the White Paper. I do not know if I have made that clear. It seems to me—I shall say no more than this— that it is a suggestion which is worth consideration. It is only something adapted from what was urged in the other place. It seems to me it will save a great deal of trouble. I am satisfied, from what my noble friends who have already spoken have said, and from what was said in the other place, that the amount of clerical work imposed upon the pay clerks of the various institutions affected by this measure is so great, and the errors that will be made week by week are so numerous, that it is quite impossible for this scheme to work very long unless some special arrangement, as I have proposed, or some better plan, is introduced for making the thing much simpler than it is at present. I say this with the greatest deference. It may be that the noble Viscount on the Woolsack will be able to show that what I have suggested is all wrong but, unless he does, I hope it will be considered.

VISCOUNT MERSEY

My Lords, I hope I may be allowed to say one word about this because I have a certain amount of personal experience with industrial undertakings. In one of them we have had to take on twenty-four clerks merely in order to do the Government's work in adjusting Income Tax deductions. There is, of course, the point of view that that is an unfair onus to lay on an industrial company. I think that on the whole it is far better that the individual wage-earner should be saved the very great amount of trouble that is involved in struggling with his Income Tax return and deductions, and that he should be allowed to devote his mind wholly to his work. That is on the same principle, familiar to your Lordships, by which large companies always take the greatest care of men who are known to be worried at home about their family misfortunes: as you know, the company generally steps into the breach. Undoubtedly the clerical difficulty is great, but it is better that additions, even of untrained persons, should have to be made to the staff to supplement those already trained and efficient, although it has to be done at the expense of the company, rather than that the burden should be thrown upon the individual worker.

Also, although it may seem not quite equitable to put this additional burden upon companies who are already struggling to keep their clerical staffs up to the mark, there is no question that from the Government point of view and from the Revenue point of view it is far better that the Government should be able to collect what is due, in one or two large cheques that will be honoured at once without any question, than that they should have the difficulty of pursuing all round the country an almost unknown number of Income Tax subjects whom they may not find, at any rate at first, very good payers. For those reasons I think the proposals in the Bill are both useful and satisfactory.

THE LORD CHANCELLOR

My Lords, I would like very briefly to ex- press to the House my satisfaction that the discussion of this Bill has led to what has been an interesting debate, and I would like at once, especially in view of what Lord Maugham said, to assure your Lordships that the observations which have been made and the suggestions that have been put forward will, I am sure, receive the most careful attention of the Department and of the Chancellor of the Exchequer. It is quite true, as my noble friend Lord Maugham said, that as the Chancellor of the Exchequer has promised a Bill with a still wider application next year, the opportunity for considering these suggestions may very well be fruitful. I certainly am not going to enter into the sharp contest as to whether one or other of your Lordships has devised a better scheme than can be found in the Government Bill. I would only venture respectfully to suggest that a Chancellor of the Exchequer, like the late Sir Kingsley Wood, does not go in for this kind of thing without the fullest possible consultation with the representative bodies who might be concerned.

Whatever may be the view expressed, no doubt very sincerely expressed, as to the difficulties, I might just observe that before the scheme was produced and carried through the House of Commons its practicability, its workability, was discussed in detail with the British Employers' Confederation and their view, after mature consideration, was that, quite definitely, the scheme was a practicable scheme. The noble Lord, Lord Perry, made a very interesting suggestion. He thought it would be better if there was a tax on wages, but he did not explain how it would be imposed. I suppose it would be by means of a percentage, and that the adjustments which arise out of marriage and children and other things would be settled later. I would venture to point out to my noble friend and to the House that there is at least one very great objection to that proposal. It is one that has been very much felt in the United States. The objection is that, in a vast number of cases, the British workman would in the first instance pay too much, but he would be offered consolation by being told that at the end of the period he would be getting something back. I do not wish to lay down the law for British workmen, but I have a very strong suspicion that this class of taxpayer might see some strong objection to paying more week by week than he would ultimately have to pay, because he would be promised that he would get something back, if his case justified it, later on. That is one of the difficulties that had to be considered.

Then my noble friend Lord Maugham referred to the case which had occurred to him of the change in the situation when another child came into the family or one died. I can assure my noble friend, and I am sure he will realize it, that this has by no means been overlooked by the authorities. It is a very obvious incident in family life and that is what is meant when it is said that arrears will be corrected in subsequent tax deductions by the application of the cumulative principle. I am not sure that I made it sufficiently plain to the House that this is not merely a system by which you deduct in a week a particular amount from that week's wages. It is also a system by which you get a review of the amount of tax that has been received from the cumulative addition of all the wages up to date. Therefore, when it is ascertained, as it would be in the course of a few weeks, that there is another child in the family, it follows that, for the moment, there has been more deducted than there ought to be. That is the whole object of saying that arrears are corrected as they are ascertained by the application of the cumulative principle.

I will not say more, because naturally I am not concerned to assert that this particular scheme is not complicated and I realize it may mean some additions to staffs that are already short. But I hope your Lordships will not only give this Bill a Second Reading, but will do so with zeal, because this proposal is a result of the most careful consideration of the sort of problems which have been very properly brought before the House in the debate this afternoon. While I shall not be so bold as Lord Perry and stoutly deny his gloomy prophecy that the Bill will lead to nothing but disaster and confusion, I venture to suggest we might for the moment give a Second Reading to it in a rather more hopeful frame of mind.

On Question, Bill read 2a: Committee negatived.