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Clause 12—(Income Tax For 1943–44)

Volume 390: debated on Wednesday 2 June 1943

The text on this page has been created from Hansard archive content, it may contain typographical errors.

Motion made, and Question proposed, "That the Clause stand part of the Bill."

There are three points which I wish to raise with regard to Income Tax. The first concerns the system of "pay as you go," or whatever it is called. It will not have escaped the notice of the Chancellor that in the United States further progress has been made with this system. An announcement regarding it was made in, I think, this morning's broadcast. I am not clear whether a Bill on the subject has actually become law, but at any rate that principle is meeting with real attention and some approval in the United States. All I would ask now is that the Chancellor should give us an assurance that he is watching what is happening on the other side of the Atlantic with a view to ascertaining whether there is any feature in their scheme which could be applied mutatis mutandis to our scheme here. I would point out that it is probably not very easy for ordinary people in this country to ascertain exactly what is being done in the United States. The reports that appear in the newspapers here or that we hear broadcast are generally rather vague. Probably it may be some weeks, or even longer, before we shall in the normal course get reliable information and details concerning the American proposal. If it were possible for the Chancellor to supply us in some form, not necessarily by the issue of a White Paper, with particulars of any scheme that is adopted in the. United States, so that we might be in a position to discuss it, it might be convenient to do so at a later stage of this Finance Bill. We are anxious to help the Chancellor, there is no question of putting obstacles in his way, and I hope that he will be able to get that information for us.

The other two points I wish to raise are really administrative points. The present Chancellor, or it may have been a predecessor, decided very wisely some year or two ago that employers should be the collecting agents for the Inland Revenue for Income Tax imposed on workers who are paid a weekly or a monthly wage or salary. One of the provisions is that the employer shall hand over monthly the proportion of the tax which he has collected. In the case of an employer with a large number of workpeople, say 100 or 200 or more, that is a most reasonable proposal, because there is no reason why he should retain in his possession large sums which he has already deducted from the pay of his workers, and the revenue that the money should be paid over as frequently as once a month.

On the other hand, it has been pointed out to me that there are a large number of employers, within the definition, with a very small number of workers. In extreme cases—and they probably run into many thousands an employer may be employing only one secretary or typist, yet under the present arrangement he has to collect from that secretary or typist the proportion of the wage that is to go in tax and solemnly, once every month, hand over the proceeds to the Inland Revenue. Let the Chancellor think what that involves. It means writing a letter, drawing a cheque, sending it to the Inland Revenue and filing the receipt. That happens every month although the tax may amount to only a few shillings, and is certainly not likely to exceed a few pounds. This involves a great deal of unnecessary waste of labour, paper and postage at a time when the Government are anxious to save all those things. I suggest that employers with less than a certain number of employees—it might be less than 10, or 4, or some other figure —should be allowed to pay at longer intervals than a month.

The remaining point I want to raise concerns a quite different question. It relates to evasion of Surtax, but I think it properly comes under this Clause because it is a matter of the computation of income. I am told that a form of evasion is being practised which takes this character. A firm or an individual—this does not affect companies—purchases by means of a bond premises which there is no intention of using during the war. In fact it would not be possible for the firm to use the premises, because they would not be permitted to make use of them. At the same time they have to pay regular interest on this bond, and by the rules of reckoning they are allowed to deduct the amount of that interest from the profits of the business, the profits being reduced by those means. It is true that the money paid as interest goes to someone else who himself has to pay Income Tax on it, but those who are paying the interest on the bond escape not only Income Tax but Surtax. I am told this method is being used to an increasing extent to evade Surtax. I do not expect an immediate answer, but I shall be glad if the Chancellor will look into the point to see how far this practice has gone. If he does find that it is extending possibly he can meet the situation, without an alteration in the law, by means of some administrative change, but if that is not possible and he does not see his way to introducing a new Clause into this year's Bill perhaps he will look into it with a view to dealing with it in a subsequent year.

I wish shortly to draw attention to two points in connection with Income Tax. The first relates to children's allowances. I do not propose to discuss the amount of the allowances, but if I did, I should argue that they were not large enough. What I wish to point out is that the allowance is granted irrespective of whether the parent contributes to the maintenance of the child or not. In his Income Tax return the parent has only to make a declaration of the existence of the child and that it is under the age of 16, or, if over that age, to declare that the child is still undergoing education, and further that it has not more than a certain amount of income in- its own right. I know that the present position has existed ever since 1920, or possibly before, but I think that the question has now assumed, at any rate since the war, much more importance than it had previously, because under the large-scale evacuation which has gone on I am sure that a large number of parents are obtaining the benefits of children's allowances without making any contribution to the maintenance of their children. The Chancellor will very likely reply that it is the business of the Minister of Health to collect through the local authorities in the evacuation areas the contributions which parents should make towards the cost of billeting their children in the reception areas, but I think that obligation is very loosely enforced. It would certainly assist the enforcement of the obligation if the parents, in order to claim child allowance, had to declare that they were making a contribution to the maintenance of the child.

I mentioned this matter previously at Question time, and the Chancellor of the Exchequer then replied that the Inland > Revenue could not possibly undertake the inquest which would be involved in individual cases. It is fair to compare with this matter the declaration that had to be made by the married man who claims the personal allowance appropriate to a married man. He has to state that his wife is living with him or is wholly maintained by him, and that declaration is requisite to his claim for the personal allowance. I think the comparison is fair. That requirement does not seem to have caused the Inland Revenue any embarrassment, and I hope that the Financial Secretary will explain why it is so easy to insist upon that declaration in one case and why the Inland Revenue feel unable to require from a parent a declaration of the kind I have described.

Considerable hardship is caused in wartime from the fact that the cost of accommodation elsewhere is not allowed as a deduction from the profit of letting a furnished house. In normal times, people who wished to move from one part of the country to another could dispose satisfactorily of their former houses, but it is not so easily done in war-time. This is particularly true in the case of people who have had to move to perform war work in another area, such movement being obviously of a temporary character. They might well desire to return later to their former homes and not wish to dispose of them. It is very unfair that the cost of their other accommodation is not a permissible deduction for Income Tax purposes.

I would like my hon. Friend to consider an illustration which demonstrates the principle which I am endeavouring to lay before him. If 500 people let their homes in Wales to 500 people from England and vice versa, at the same furnished rent, the Chancellor of the Exchequer taxes 1,000 so-called profits, and yet there is no net profit whatsoever to any of the persons so taxed. That is a pretty piece of profiteering but is perfectly lawful, because the Chancellor of the Exchequer is supported by the legal authorities. In the leading case—Wylie v. Eccott—it was held that the deduction of the rent of other accommodation was inadmissible. I realise that in war-time the Treasury do not want to undertake anything that would involve a substantial revision of Income Tax principle. They are much too busy with more pressing work, but something ought to be done in cases where, owing to exceptional conditions prevailing in wartime, hardship arises which did not exist before. It is not only of importance to the individuals who are taxed, but it has a wider aspect of great importance. We know that the Minister of Labour is anxious to increase the mobility of the population as much as he can and to enable people to move at short notice from one part of the country in order to take up work in another part. There are cases where officers in the Forces with duties at military stations may have to change those stations and would naturally like to be accompanied by their wives and families. In order to promote the mobility of the population, it is important that some concession should be made.

We have heard many complaints of the very high cost of obtaining furnished accommodation. The high scale of furnished rents is largely due to the fact that the people who let those houses have to find accommodation elsewhere. They suffer a very heavy loss. If a person lets his house furnished in one place at 4 a week and moves to a house in another part of the country and there pays i4 a week, he cannot set off one sum against the other for purposes of taxation. Having suffered a net loss, he then does all he can to recover the loss by charging an even higher price. This is a war-time matter of considerable importance, and I hope that the Chancellor of the Exchequer will give my suggestion his careful attention.

The speech made by the right hon. Member for East Edinburgh (Mr. Pethick-Lawrence) was clear and interesting in regard to administration rather than to anything else. I was very pleased to hear him refer to something which appears in this morning's Press regarding the United States, and the "pay as you go" Income Tax plan. It is very difficult for us to understand how they deal with the different points of view, partly because of the meagreness of the information we receive, but I hope that the Chancellor of the Exchequer will closely follow what is going on in that country, and particularly the plan of cancellation of two years' arrears, owing to the great difficulty of collection. Income Tax payers in the working class are put to a certain amount of hardship when they have to pay in arrear instead of having it collected weekly as they earn the money. I hope some great effort will be made by the Chancellor of the Exchequer and by those responsible for the collection of Income Tax from the working people. I have no doubt that the Chancellor has interviewed representatives of the workers and of the employers, and perhaps he has difficulty in finding some means by which the disturbing element can be removed. In the course of time I hope something will be done and the working class be relieved of the difficulty which is presenting itself every day.

My right hon. Friend the Member for East Edinburgh (Mr. Pethick-Lawrence) suggested that the Chancellor should issue a White Paper, or should find some other means, to convey to us the information about the "pay as you go" scheme in America. An equally valuable piece of information would be a report upon the alterations in our own wage tax and how the tax has operated for the past 12 months. Very considerable changes were made in the last Finance Bill as to how the tax on weekly earnings should be assessed, and if those alterations have not been successful, the case for further alterations is very greatly weakened. The only source from which we can get really satisfactory information is the Chancellor of the Exchequer. When he has adequate data and has had a full 12 months of its operation, I hope he will consider issuing a small report on the matter showing how those alterations have affected the collection of the tax and how far they have gone towards removing the difficulties which were so obvious 12 months ago.

I want to support the point of view of the right hon. Member for East Edinburgh (Mr. Pethick-Lawrence) with regard to the burden falling upon small employers in making the monthly return of Income Tax. I am thinking particularly of the case of farmers who are very busy upon extremely important war work and are overwhelmed by the number of forms with which they have to deal. Clerical work is more of a burden on them than it is in the case suggested by my right hon. Friend, of a man with a secretary, and efficient production may be affected by the amount of clerical work that has to be done. Perhaps the Chancellor will be able to make some amelioration with regard to that matter.

I wish to add one word which occurs to me as a result of what was said by the hon. Member for Chesterfield (Mr. Benson). While it would be very helpful to learn what has been achieved by the concessions made a year ago in regard to Income Tax deducted from wages, I hope that if they have been successful that will not be taken to mean that no further change in this matter is called for. So long as people are continuing at the same level of remuneration as in the previous year, it does not much matter whether the tax is related to the current year or the one before it. The thing I suggest the Chancellor must keep his eye on is what will be the position when the level of employment is not as satisfactory as to-day, and when, moreover, the hours of work are not as long as they are to-day. On top of that there may well be found necessary some change in wage rates.

So after the war there is, to my mind, an inevitable position to be dealt with which calls for consideration in dealing with this "pay as you earn" question, so I hope that anything which is regarded as satisfactory now will not necessarily be taken as satisfactory for the future. One is very conscious of the administrative difficulties which a change such as is proposed must mean, but there are two which, to my mind, can be safely ignored and attention focussed on others. The first is the likelihood of wages being paid long after the work to which, they relate has been performed, but by a system of "subbing" I do not think that need present any real difficulties to the person concerned. The other one, which I hope will not be taken too much to heart, is the apparent loss to the Revenue of anything to wipe out tax related to a past year and the substitution of tax relating to the current year, because so long as money continues to be paid by individuals and received by the Treasury it is, to my mind, purely a bookkeeping entry as to which year the money is actually related. The idea that so many hundreds of millions are lost by this change, I feel. would be an illusion by which we should not be led away.

I would venture to offer a few observations on the points raised. The first, initiated by the right hon. Gentleman the Member for East Edinburgh (Mr. Pethick-Lawrence) dealt with the question which he described in what are now familiar terms in this Committee as "pay as you go." I would recall to the Committee the previous statements I have made on this matter. For the last year or 18 months I have, in the first place, kept in close touch with the executive of the Trades Union Congress and the employers' association on this particular matter. We have discussed and examined a number of- the schemes which have been put forward, and there has been no desire on behalf of either that great body which represents the workmen or that powerful association which speaks for the employers, to act otherwise than in the best interests of the worker and of trade and business in this country. I can assure my hon. Friends who have spoken that those bodies are just as much alive to the post-war position as any Member. In fact, they are much more concerned, since they would have to deal in a more intimate fashion with many of the difficulties which might arise. I invite any who would like to refresh their memories on the difficulty of the matter to read again the White Paper which I issued at the time of the previous Budget, which was purely a presentation of the facts of the matter, and raised very substantial difficulties.

That is one side of the position. The other side is that I have said that if at any time any further scheme came forward which promised to be of practical application and to offer a reasonable solution, I would be only too glad to see it and again submit the matter to careful examination. Also I would remind the Committee that I have informed them that the Board of Inland Revenue themselves are making a further and expert investigation into this matter and that they have particularly in mind possible post-war complications. I also said, and I repeat to-day, that in that examination they must, of course, have regard to questions of this character. I have a feeling myself that it is in that direction that we are most likely to get a successful solution of the matter if it can be found, because they will themselves act, as I shall, in continued association with the representatives of the employees and employers. It is from that particular quarter that I am most hopeful of getting concrete proposals. I must say I was amused on one occasion when I heard someone get up and say it would be a good thing if I were to appoint a committee and put on it one representative of the workers and of women employees and others. Cruelty to animals, Mr. Williams. Many of us might be very unwilling to sit upon a committee of that particular character. This subject has to be dealt with by experts, and I am forcibly reminded of this because, of course, I should have to meet the situation if we failed to find a proper and satisfactory solution. But do not let us deceive ourselves that it is easy to find a solution. I have been asked about the position in the United States. Even with the incomplete information which is available to us, one has only to look at what has happened so far as the discussions in the House of Representatives there are concerned. Did any of my hon. Friends who are so optimistic on this matter see what the votes were on the particular proposals put forward? Did they observe——

I regret having to interrupt the right hon. Gentleman, but I do not think we can discuss the actions and votes of other Chambers in other countries on this matter, except as an illustration.

On a point of Order. We are discussing the question of Income Tax in relation to great masses of the wage-earning population. How it is collected has been the subject of contention, and the right hon. Gentleman has said, "Can we not examine the position and the solution sought in another country and learn from it?" The Chancellor replies, "Let us see what has happened in other countries, and let us study it." I would have thought that this was the appropriate moment to have done that kind of thing.

I agree with that so far as it relates to an illustration as to how the thing is done in another country, but there is no need to carry an illustration so far as to bring in the votes in the Chambers of those other countries. That is where I think the illustration should stop.

I shall not have any difficulty about this matter, Mr. Williams. I will content myself by saying that in fact there were considerable differences revealed on this subject in America. But I am mindful of what my right hon. Friend suggested about information for this House. Perhaps I might make available in the Library some record of the discussions in the House of Representatives. I have available some records of the discussions, because I was anxious myself to see exactly what was happening. I might place these at the disposal of my hon. Friends who are interested in this matter, so that they will be able to see, as I am endeavouring to see, exactly what has happened. The matter has gone through the House of Representatives and is on its way to the Senate. This demonstrates that the matter is a difficult one. At the same time I do not want anyone to think that because I am emphasising these difficulties and differences I am not alive to the necessity for further consideration of this matter; on the contrary, the Trades Union Congress executive, the representatives of the employers, and I myself are very mindful of it.

My hon. Friend the Member for Chesterfield (Mr. Benson) has again raised an important point, as he always does, in connection with the same matter, when he inquired how the scheme is now proceeding in the light of the alterations we made last year with the approval of the House. I will see whether there is any way of giving some further information about this. I would say in reply that practically all the suggestions which came from the House last year, and which I adopted, have helped to make very much for the easier collection of the tax. In saying that, I do not want to mislead the Committee. Just because these alterations have been made now that is no reason to assume that they will be a sufficient remedy for any problems in the future. My right hon. Friend the Member for East Edinburgh also asked what could be done to alleviate the position where perhaps, under a strict interpretation of the rules and regulations, an employer with one or two employees is called upon to make a monthly return and to make a monthly contribution on behalf of one individual. It is obvious that where there is a considerable number involved I must see to it and insist that the money comes from the employers at proper, regular and fairly short intervals, say of a month. I cannot contemplate a longer period than that, not that I wish to make accusations against anybody, but obviously it is businesslike to ensure that money which belongs to the State should be returned promptly and regularly. As. regards the cases where there is a single employee, we should be prepared—I should be obliged if hon. Members would let me know of any cases of the kind—as we can do administratively, to make an arrangement whereby, instead of sending it every month, they send it every quarter or something of that kind. We would be quite prepared—the authorities are desirous of acting reasonably—to enter into arrangements of that character, and indeed there are many cases in which we have done so.

Could the Chancellor take that point further? It is a very important point. I understood him to say that where there is a single employee arrangements will certainly be made to extend the period over more than one month, and, he rather vaguely said, where there were two or three concerned. Does he mean by that that he is fixing a number, say two or three employees, or is he only expressing rather general hopes that something may be clone? If he will fix a number, not now, and he asks for examples, quite clearly if some of us know what it is he is suggesting, we will willingly co-operate with him in working for that principle.

I will see whether I can give a more definite interpretation; but where the number is such that the authorities can be satisfied that proper and reasonable arrangements of this character can safely be made, they will be only too happy to consider it—that I think would be the best way of putting it. I will also look into the matter my right hon. Friend put before me on the question of evasion of Surtax. I would like to examine that in detail and give him a considered reply.

The hon. Member for Tamworth (Sir J. Mellor) raised the question of children's allowances.- He has put this matter before me previously in the House, and has given special attention to this and other questions of Income Tax administration which have been of interest I think that his suggestions have been of value to those of us who are engaged on the subject, But I hope he will permit me to say that I do not think that the analogy of the children's allowances with the personal allowance for a married man is a good one. The children's allowance is given only if the child's income is less than £50. The wife's higher personal allowance is given however high the wife's income may be. The wife's income for taxation purposes is treated as the husband's if husband and wife are living together. If, however, they are legally separated they are treated as single persons. Therefore, the declaration by the taxpayer in respect of his wife must be different from that made in the case of a child. In the case of the wife, he declares that she is living with or being maintained by him; but in the case of the child, he declares that the child's income is less than £50. If the child's income is below this limit, it would not be practicable to start an inquisition into the question of whether the parents do or do not perform their normal duties of looking after the child.

That is the duty of the local authorities.

Then my hon. Friend raised the question of profits from letting a furnished house. There, I think, the position was not correctly stated. In assessing the profits, an allowance is given in respect of the annual value of the house and depreciation and other out-goings. No question arises of double taxation, nor is the question of the cost of alternative accommodation, when the taxpayer lives elsewhere, relevant, since the cost of living, which includes rent paid by the taxpayer him self, obviously could not be an allowable deduction for taxation purposes. I have briefly answered the questions which have been put to me, but if there is any further information required, I will gladly communicate with hon. Members. I am glad that this discussion has taken place. It has been a short but a useful discussion, on a matter which is causing concern here and elsewhere, and which is very important from the point of view of our future administration.

Would I be in Order in asking whether there would be any allowance for a man whose sister is keeping house for him? I know a case of a man who is not allowed any rebate for his sister, although she has kept house for the whole family since the mother died. Is there any hope on that subject?

I think that there is an Amendment to be moved shortly, relating to allowances for a sister or daughter.

Question, "That, the Clause stand part of the Bill," put, and agreed to.

Clause 13 ordered to stand part of the Bill.