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Clause 3—(Transitional Provisions)

Volume 393: debated on Tuesday 2 November 1943

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

Amendments made:

In page 4, line 27, at the end, insert:

"other than emoluments of any class which, in relation to tax for the year 1942–43 was generally treated for the purposes of the regulations under Section eleven of the Finance (No. 2) Act, 1940, as a class of case where tax was deductible from emoluments otherwise than by virtue of those regulations."

In page 5, leave out lines 29 and 30, and insert:

"(6) Where a person enters an employment."

In line 33, leave out from "forty-four," to the end of line 34, and insert:

"and the wages and other emoluments arising to him from that employment are by virtue of paragraph (b) of sub-section (2) of Section one of this Act, but would not apart from that paragraph be, emoluments to which this Act applies, those wages and other emoluments shall be left out of account for the purposes of sub-section (3) of this Section."—[Sir J. Anderson.]

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

I wish to raise a matter which I think will affect some constituents of every Member in the Committee, and will in all touch the fortunes of some 750,000 people. I refer to servants of the Crown. When this Bill first came to the House, servants of the Crown were excluded from its scope, and it became my duty to urge that Crown servants should be brought within the scope of the Bill. The Chancellor of the Exchequer was good enough to agree to that, and I may say that whatever difficulties I shall shortly refer to, it is in my opinion sound in principle that State servants should be brought within the scheme. But if they are to be brought within the scheme, I think the State servants themselves are entitled to ask that the incidence of the scheme, as it affects them, shall not be more unjust than the treatment given to other categories of taxpayers. I propose to show, I think beyond any possibility of dispute, that the way this thing is to be applied to State servants is fantastically unjust, and that the Committee ought not to let the Bill leave the House without insisting upon very definite assurances that the complaints I shall outline will be dealt with.

I will take two main types of case. The first is the case of the individual who to-day is employed in private enterprise in commerce or industry, and who to-morrow comes into the public service, as a temporary clerk or officer, for the period of the war and perhaps for some time afterwards. In order to make the calculation easy, let us assume that the day he comes in is 5th April, 1943, or 1944. In outside industry he will have been paying up to this date one year behind, that is to say, he will be paying this year the tax that accrued on his income of last year. As soon as he comes into a Government Department he begins, from the very first months, to pay tax on his current earnings. So that, for the first 12 months in his employment in a Government Department, he is paying tax on two years' income within a single year. First he is paying this year's tax on salary earned last year, and then he is also paying this year's tax. (We have had this system of deduction at source for a long time in the public service.) I submit that this is a monstrous thing. It is wrong, unjust and unfair, and the Committee should not tolerate that a Crown servant should have to pay two years' Income Tax on one year's income. I am not alone in complaining about this. The Chancellor will probably be surprised to know how much discussion there is within his own Department, very vehement discussion, which the tender ears of the Chancellor had perhaps better not hear. This discussion is justified, for the position cannot be defended. I ask the Chancellor to meet that kind of case straight away, in a way I will shortly suggest.

When we first complained that it was monstrous to deduct two years' tax from one year's salary the Chancellor of that day said, "Well, it is pretty rough now, but after all, these temporary civil servants will go out into private enterprise again after the war and then they will have the accumulated reward of virtue, for they will, for a period after going out into the world again, be exempt from tax." That at least was some sort of reply. [Interruption.] That reply was given by the late Sir Kingsley Wood. But that reply cannot apply now, because from now onwards these men will be on the pay-as-you-go system, and when they go into the outside world again there will be no question of a period of exemption from taxation. They will have to go on paying, so that the justification advanced in this case at an earlier stage cannot now apply at all.

I now wish to raise the general question. It has been decided—and I am not quarreling about this at all—that when the wage-earner comes into this scheme he is given a 10 months' discharge of tax liability, in order to make it possible for him to come into the scheme. The salaried worker is to get a smaller but a substantial, discharge of seven months, in order to facilitate the changeover from one scheme to another in his case. I wish to impress on the Committee that for decades past civil servants have been paying on a pay-as-you-go basis. It is true that they have paid this year on last year's assessment, but they have been paying currently all the way through. In other words, the Chancellor of the Exchequer has been getting his tax from us months before it was due—months before it would have been due if we had been ordinary taxpayers in the outside world. The only justification he has had for that is that we have been to hand. We have been near by, and within his clutches. We have been servants of his, and he could get hold of us in a way that he could not get hold of a member of the outside public. For long years past we have been paying currently on our incomes. In other words, we have been paying months ahead of the outside community. The outside community get their demand notes six months after. If they pay promptly, they are six months behind civil servants. And they do not always pay promptly, as hon. Members know.

At best the civil servant has been six months ahead, and in many cases years ahead, of the outside taxpayer. That ought to have counted to him for merit, but what does the Chancellor say? He says, "Because you have been so good, because you have paid in advance, we shall not give you the seven months' rebate or the 10 months' rebate which we give to the outside world, to whom this scheme is applied for the first time." I submit that is monstrously ungenerous and unfair. Now the Chancellor may very well say that he has collected this money, and that however hard it is for him to forgive contingent moneys in the future, that is nothing to the hardship it would impose on a Chancellor to ask him to pay back money he has already got. I can very well understand that the Chancellor would entertain the strongest objection now to paying out seven or 10 months' acquired tax which he has wrongfully had, year after year, from the civil servants—wrongfully from the point of view of there being any justice about it. I do not intend to ask him to do that, because our present Chancellor is not merely Chancellor but is Scotch too.

What I urge is that there is a way out which will satisfy our sense of justice on this without at the same time involving him in paying out large sums of money from his acquired store. That way is to give the civil servant a credit—both the temporary who has come in for the period of the war, in respect of that double payment, and the ordinary civil servant in respect of the seven or 10 months' discharge. Give him a credit note which can be used, not now, but in the last year of his service with the State, so that he gets a corresponding rebate even though it is at the very end of his career and not now, as it is in the case of the outside wage-earner. I submit that if the Chancellor did that, it would satisfy our sense of justice on this matter, and it would not involve him in the immediate pouring out of public money. This proposal is such that I am astounded at my own modesty in making it. I understand that the Staff side of the National Whitley Council, which represents the organised civil servants, is sending a declaration either to the Chancellor or to the Financial Secretary in a few days' time.

I do not know whether we need an Amendment of this Measure to make what I have suggested possible. I believe it is possible without an amendment of the Act, because civil servants hold an exceptional position in regard to Income Tax legislation, as they are paid direct by the Crown. I hope that the Chancellor will do this, and that when that deputation comes to see him in a few days' time, he will not give them a stone when they ask for bread, he will not give them merely the soft answer which turns away wrath; but that he will give that just and generous answer which is the mark of all great souls, among whom I include my right hon. Friend.

The hon. Member for Rugby (Mr. W. Brown), in his delightful speech, has brought forward a case which he believes to be very strong. My point is rather different, but my case is even stronger. The hon. Member has been arguing that people who receive the same income in 1943–44 should be liable to the same treatment, even though they are in different kinds of employment. My argument is that we must be absolutely certain that people who have earned the same amounts in 1943–44 in similar kinds of employment receive the same taxation treatment. As it is, this Clause lays down that the taxation of two people in virtually identical circumstances may differ radically, according to the dates of their death. May I give a practical example? Let us take two individuals, whom we will call Bill and Tom. I had thought for a moment, in order to bring it home to the Government, that I would call them John and Ralph, but I will not do that, because my story postulates the early death of both of them.

Both are in similar employment. Their earnings in 1943–44 would make them liable to tax of about £120 for the year. That would be deducted at the rate of about £10 per month in the last two months of the year, February and March, 1944. Bill, however, dies on about 7th April, 1944, and, benefiting from lines 7 to 15 on page 5 of this Bill, his widow or dependant will be free from any further tax liability. The £20 will have been paid, and the remaining £100 will be discharged. Tom is not so fortunate. He dies a week earlier, just at the end of the current Income Tax year, when he has had all his earnings but, unfortunately, has not lived beyond the critical date of 5th April, and so has no advantage to accrue to him from the terms of this Clause. In fact, therefore, while he, too, will have had £20 deducted from his earnings, his widow will be faced with a demand for no less than £100 on account of tax arrears. It seems to me indefensible that two peoples, whose cases are in no way different except for the chance dates of their death, will have to pay in the one case £20 and in the other £120—six times as much—in Income Tax for 1943–44. I am fortified by a phrase which the Chancellor used on an earlier occasion, when he said:
"Taxpayers are inclined to look very closely at the treatment meted out to other taxpayers, and a feeling of injustice, which is bad from every point of view, can very easily be engendered if hasty action is taken without carefully considering all the possible implications."—[OFFICIAL REPORT, 20th October, 1943; col. 1450, Vol. 392.]
Of course, I realise that the Chancellor could not hastily at this stage amend this Bill to correct the anomaly I have mentioned, but I hope I have established to the satisfaction of the Committee that injustice arises here. I hope that the Chancellor will be able to give an assurance that this can be treated as one of the points remaining open for further examination, with all the other transitional points which he has said will have to be settled up in the later Bill which is promised to us.

I would like to emphasise the importance, which has been mentioned by my hon. Friend, of clearing up the position of the burden on widows. I would like to mention a case. I do not know the man, but I knew of him; he was employed by a company with which I have some connection. He made rapid progress, and at the time of his death he was receiving a salary of £1,250 per annum. In the last years of his life he had a series of illnesses and expensive operations, and he left only £960, but the widow had to find £380 for Income Tax. This is a more serious matter than Death Duties—the widow was, in fact, owing about 18 months' tax. Although the position has improved, as I understand, by the proviso to which my hon. Friend has referred, I hope that something further will be done, and that the Chancellor will take note of what my hon. Friend has said. I imagine that this Bill, as it contains such a variety of administrative provisions, cannot be certified as a Finance Bill so far as another place is concerned. Mr. Speaker has to decide whether there shall be a certificate, but if there is none some parts of the Bill may be susceptible to alteration in another place, and perhaps my right hon. Friend will bear these points in mind then.

I am much impressed by what was said by my hon. Friend the Member for Rugby (Mr. W. Brown). Perhaps I might quote my own case. In January, 1928, I went to the Board of Trade as Parliamentary Secretary. I had at home one of those interesting documents asking me to make certain payments to the collector of taxes. I had not in fact made the payment by 15th January. Two days later the first official interview which I had, after meeting the head of my Department, was with a gentleman calling himself the assessor of taxes, who wanted to know all about my private affairs. On 31st January I had a payment made to my bank. From that they deducted my Income Tax, so I was in the unhappy position of being taxed on the employment I had left and on the employment I had entered under His Majesty. The effect of becoming a junior Minister was that my income was reduced anyhow; and, altogether, I had a rather unhappy time in that position. I notice that the present holder of that position is in his place; I do not know how he has got on there. In May, 1929, the Prime Minister of the day decided to resign, and I automatically got the sack with him. I went back to my old job. Before long I had a communication from my previous collector of taxes. He said, "I shall have to raise an assessment on you." I said, "What are you going to assess me?" He said, "You will have to guess what you will earn, and we shall have to make some adjustment later, if necessary." So I never escaped. I paid twice in one year, and did not get out of paying anything in the other. The Chancellor seems somewhat perturbed at that, but he is not nearly so perturbed as I was. I have tried to see some way in which I can help myself over this Bill, but I cannot see any. However, I am not a jealous person, and because I am a Schedule D man I do not feel that those coming under Schedule E ought not to have a measure of justice. I hope, however, that my right hon. Friend will see what he can do to meet the point put by my hon. Friend the Member for Rugby and my hon. Friend the Member for West Lewisham (Mr. Brooke).

My hon. Friend the Member for Rugby (Mr. W. Brown) made an eloquent plea on behalf of the Civil Service. I would like to begin by assuring him that my general attitude towards the Civil Service is no less sympathetic than his, although I occupy for the moment a position of greater detachment. My hon. Friend put forward his plea under two heads. He dealt first with the case of over-lapping payments. This point was also made by my hon. Friend the Member for South Croydon (Sir H. Williams). It is true that when a person who has been taxed on the basis of the previous year comes into the Civil Service, as a great many public-spirited people have done for purposes connected with the war, there is for the time an overlapping of payments. There is an obligation to pay the overlap of tax, if it was on Schedule E, for seven months after the beginning of the Income Tax year in respect of the previous occupation or employment, and there is the current obligation to pay tax as a civil servant. I have no doubt that those who have felt a sense of injustice on that score have in many cases been comforted by the assurance that there was a good time coming when they would have, on their reversion from the Civil Service to outside employment, a corresponding tax holiday, We are doing away with that tax holiday so far as Schedule E taxpayers are concerned by introducing pay-as-you-earn. I am perfectly ready to promise between now and the Finance Bill, when we shall be dealing with transitional problems, special consideration of that particular trouble.

Will that cover the case of railway salaried officers as well?

It should be taken that when I speak of civil servants I include those who by this Bill are treated on the same footing, salaried railway servants, and, may I say, Ministers of the Crown—my hon. Friend will realise the difficult position that puts me in. Let me come to the second proposition that my hon. Friend advanced with such sweet reasonableness. He said, in effect, "Inasmuch as you are giving as part of this plan of pay-as-you-earn, a remission, or a discharge, of tax for seven months or ten months, as the case may be, you ought surely, in equity, in order to avoid an unnecessary sense of grievance, to give a similar discharge to the civil servant." He very kindly suggested a method by which he thought that that process could be made less painful to a Chancellor of the Exchequer. Let us look at this thing on merits. Civil servants have been on the system of pay-as-you-go, if not precisely pay-as-you-earn, from the beginning of time. The hon. Member tried, not perhaps with his usual success, to make a grievance of that, because really pay-as-you-go is what civil servants under his guidance are asking now. They want pay-as-you-go made one better, that is, converted into pay-as-you-earn. When they are asking for that, it is rather difficult for them to make of the fact that they have been half-way there from the ginning of time a grievance seeking for special remedy.

I did not make a grievance of that, but that it was not the same for everybody. It is not an absolute grievance.

The whole of the grievance as I understand it is one of relativity, that other people are being treated better. It is not very easy, as I think he must have felt, to build on that particular feature, seeing the position that civil servants occupy in relation to this business. My predecessor did not propose to include them. I included them as an Amendment to the Bill as drafted. Why? Because, rather to my surprise, the civil servants came along in deputation and said that they wanted it. I did not at first understand that, because in the case of many of them with rising rates of remuneration the effect of this Bill, by substituting the current year for the previous year, may make a lot of civil servants pay more tax. Then I was told that there are all the people who are earning large sums for overtime and that when conditions became normal and overtime ceased, those people would benefit by being on the current year's assessment. Then there were all the people who during the war, because of the expansion of the public services, have been holding acting appointments. Some of them may expect in the ordinary course to revert. They will benefit at that time if they are now brought in. For those reasons the civil servants, through their organisations, asked not only that the scheme be extended to them on the footing originally contemplated, that is, for manual wage-earners and non-manual wage-earners and then civil servants up to £600 a year, but over the whole range of Crown servants without limit of remuneration. It was at their request. It was made clear to them at the time that in their case, as there was no question of overlapping payment, there should be no discharge. That was made clear, and nevertheless they ask to be brought under this scheme.

What are the merits of the proposal that civil servants should be given a discharge? I made it perfectly clear in my speech on the Second Reading that discharge of tax was a feature of this scheme which was not advocated for its own sake. It was included in the scheme because it was an essential condition of securing the introduction of what was regarded as a superior method of assessing and collecting taxation under Schedule E; its object was to ensure that there should be no overlapping payments. It was in order to get rid of these overlapping payments resulting from the introduction of pay-as-you-earn that discharge of tax was included as a feature of the scheme.

I must hold firmly to the principle that discharge could only be conceded where there is an element of overlapping. If I were to give way to a plea which can be put forward in a way that excites sympathy, that we ought to try and treat all classes alike and inasmuch as the ordinary Schedule E tax payer is getting what in effect is a substantial remission of tax—though in the course of Debate attempts were made to whittle down the effects of that remission, by urging that it amounted to very little—if I were to try to accept this plea I should really put my foot on a very slippery slope. It is not possible to make such changes as we are making now without creating distinctions which will inevitably give rise to a sense of grievance. I said so, and made it clear, when I first told the House I was prepared to consider extending pay-as-you-earn over the whole range, that I knew quite well the concession asked for, if it was made, would become the basis for applications for adjustments of all sorts of supposed hardships, not in themselves substantial hardships, but hardships by comparisons made between one class of taxpayer and another. I have to resist such claims. If not, I should be in a hopeless position in regard to people under Schedule D. There are taxpayers paying on earned income under Schedule D who have just as much claim to remission and adjustment as anybody else, but it cannot be done. Great as my sympathy is for civil servants, but putting on one side altogether any personal feelings, as I must, I find it inevitable that this plea should be rejected.

Now I come to what was said by my hon. Friend the Member for West Lewisham (Mr. Brooke) on a cognate question. My hon. Friend drew attention to the contrast between the treatment under this Bill of the taxpayer who dies just before the end of the tax year and the taxpayer who dies just after the end of the tax year. I repeat what I have said already with regard to the plea of the hon. Member for Rugby. I must hold firm to the principle that discharge can only be granted where there is an element of overlap. In the case of the person who dies before the beginning of the tax year there is no current assessment in the following tax year. There is, therefore, no element of overlapping. Where a person dies after the beginning of the tax year there is an element of overlapping. I admit frankly that we are not being particularly logical, because we leave the person who dies before the beginning of the tax year to meet the whole of his obligations for the current year. But we do not propose, where a person dies after the beginning of the tax year, that if overlapping ceases because he has died and is no longer earning and liable for tax in the current year, to re-impose upon him the balance of the tax to be discharged for the previous year. That is perhaps, as I have said, illogical, but it seemed to me and my advisers impossible to carry the thing to so fine a point as that. So we have said that where a man dies after the end of the year he has the full discharge, although there may not be overlap for the full period of seven or ten months as the case may be. My hon. Friend asked whether the point would remain open if the plea were rejected now. The answer to that is clearly "Yes; it can be raised subsequently," but it is only right that I should make clear to him, as I have done, what view I take of the merits of his proposal.

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