PERSONAL TAX SYSTEM (Hansard, 16 February 1977)

§ Lord CULLEN of ASHBOURNE
My Lords, I beg leave to ask the Question which stands in my name on the Order Paper.

The SOLICITOR-GENERAL for SCOTLAND (Lord McCIuskey)
My Lords, certain measures of simplification to the personal tax system are already in train. Legislation was included in last year's Finance Bill, and will come into effect in 1979–80, changing the method of giving tax relief for life insurance premiums. The replacement of child tax allowances by child benefit will also make a contribution to simplification when the 1541 phasing out of the tax allowances is completed. My right honourable friend the Chancellor of the Exchequer is always prepared to consider suggestions for further simplification and will, I am sure, bear this consideration in mind when framing his forthcoming Budget.

§ Lord CULLEN of ASHBOURNE
My Lords, while thanking the Minister for that reply, may I say that I believe all of us would like the Government to go a great deal further? Since 1945, while the Inland Revenue staff has more than doubled from 36,000 to 83,000 and while both major Parties have said on several occasions that they wish to simplify the taxation system, may I ask the noble and learned Lord the Minister whether he does not agree that it really gets more complicated every year? Secondly, does the noble and learned Lord agree that the taxation system in this country is much more complicated than in Europe and the United States? Does he also agree that a Royal Commission, set up to simplify the system of taxation, would command widespread and heartfelt support?

§ Lord McCLUSKEY
My Lords, on the first point, the system is indeed complicated. That complication derives from the fact that if one goes for simplicity one tends to lose fairness. A judgment on the American system recently given to the Public Accounts Committee in this country was to the effect that the American system, albeit simpler, appeared in fact to be less fair than ours as between individuals. With regard to a Royal Commission, as the noble Lord will know a Royal Commission sat under Lord Justice Cohen and reported 20 years ago. It looked into this matter and, on the second branch, it considered the question of tax avoidance and said that the Commission did not favour a departure from the present system of detailed legislative control imposed against the various forms of tax avoidance thought to be obnoxious. It recommended the retention of the existing machinery. So long as one has this game of intellectual leapfrog between, on the one hand, accountants and, on the other hand, Inland Revenue officials, one will have a complicated system.

§ Lord HAILSHAM of SAINT MARYLEBONE
My Lords, without in any way seeking to ask the noble Lord to anticipate 1542 the Budget, and without in any way underestimating the initial expense of such a scheme, is not the clue to this matter the reduction to a single system of the system of social benefits and taxation on the lines of the tax credit scheme, the details of which are very well known to the Government?

§ Lord McCLUSKEY
My Lords, the noble and learned Lord will recall that proposals for a tax credit system, about which he speaks, were contained first in the Green Paper published in October 1972. That system was one which the authors of the foreword, who signed their names as Anthony Barber and Keith Joseph, envisaged might come into effect some five years after Parliament gave its approval. That is necessarily a long-term measure, and the Government have also calculated that for a system of this kind the cost per year would be some £5,000 million. If that cost is to be made up, it would have to be either by an increase in the basic or standard rate, by increasing value added tax or by some other system. The Government are not prepared to move towards that at the present time.

Earl FERRERS
My Lords, would the noble Lord not agree that the leapfrogging of the accountants and the tax inspectors, to which he rightly referred, is a terrible dissipation of national effort, and that if some way of simplifying the taxation system were found this would give far more encouragement to individuals to give of their best, rather then try to avoid the existing system?

§ Lord McCLUSKEY
Yes, my Lords.

§ Lord ROBBINS
My Lords, would the Minister not agree that, whatever general principles of direct taxation be adopted in the future, the system will be simplified only if direct ministerial orders are given to the Inland Revenue to simplify? Would he also not agree that any attempts at simplification which may have been made by successive Ministries have been incidental? Simplification, as such, has not hitherto been the direct target of any administrative activity.

§ Lord McCLUSKEY
With respect, my Lords, I think that that is unfair to the previous Government. I should 1543 have thought that, whatever else it was, the proposal for a tax credit system was an attempt to simplify the system. It may not have been an attempt which met with the approval of the then Opposition members of the Select Committee, but it was an attempt; and Treasury officials are well aware, at the behest of Ministers of both Governments, that it is desirable to simplify the system.

§ Lord HARMAR-NICHOLLS
My Lords, is the noble and learned Lord not aware that the two examples he gave in his original Answer were so insignificant as to be proof that no real effort has been made to bring about this vital simplification? Unless some of the complexities are removed, we are not going to get the industrial harmony and co-operation upon which at the end of the day the very strength of this country will depend.

§ Lord McCLUSKEY
My Lords, I would not agree with the noble Lord. It is thought that the child benefit change will reduce the number of staff by 1,500, and the other measure which I spoke of is expected to reduce the number of staff by 1,000. I do not regard these as trivial benefits.

§ Lord ROBBINS
My Lords, would the Minister agree that he made a slip of the tongue in referring to Treasury officials being sufficiently aware of this? My question was directed to the activities of the Department of Inland Revenue which, constitutionally, is a separate Department although reporting to the same Chancellor.

§ Lord McCLUSKEY
Yes, my Lords; I will accept that correction from the noble Lord.

§ Lord TAYLOR of GRYFE
My Lords, is the Minister aware that the Institute for Fiscal Studies has an expert committee examining this matter and has been engaged in this for the past two and a half years, and will he give due weight to its findings when its report is received?

§ Lord McCLUSKEY
My Lords, I am certain that my right honourable friend is aware of the work of this committee and will give due weight to its findings when they are received.

§ Lord BOWDEN
My Lords, are the Government really aware of the enormous cost of collecting the taxes, not merely that incurred by the Department of Inland Revenue, not merely the enormous fees sometimes paid to accountants, but in the immense complexity with which ordinary people have to struggle, which often takes them away from what should be their proper function of creating wealth, for the purely administrative purpose of coping with the incomprehensible taxation system with which we have to contend? Is he further aware of the fact that although a major effort was made to simplify the taxation system in 1972, in the last four years almost all of the complexities which were then removed have been reinserted by successive Governments and successive Administrations?

§ Lord McCLUSKEY
My Lords, as to the cost of collection, the cost to central Government is less than 2 per cent, of the yield. One recognises that there is a cost, which one cannot readily calculate, to individuals both in terms of outlay and in terms of the complication of forms. But given the system which one has to have in order to meet the risk of unfairness, and to reduce tax avoidance, I am afraid that the complications of forms and the like simply reflect the sophistication of the system.

Lord MORRIS
My Lords, is the noble and learned Lord aware that the last time the Labour Government——

§ Baroness LLEWELYN-DAVIES of HASTOE
My Lords, I think your Lordships will have observed that the clock was not on for the first three or four minutes, and we have therefore had quite a long time on the first two Questions. We have two more to come, and a Statement, and something like 47 speakers for the rest of the day.