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Clause 13—(Income Tax Relief For National Insurance Contributions)

Volume 641: debated on Sunday 7 May 1961

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

I have waited a very long time to make this speech, and I regret that the Government have decided to proceed with this Clause this morning. I say that because, as always, I find less interest shown in those living on small fixed incomes than is shown in those above that category. Although I much regret having to keep everybody here—and particularly do I regret having to keep the staff here—I have tried for ten years to win this battle and it would be most unwise, even at this hour, not to put the case I have to make.

Clause 13 lays down the additional tax relief in respect of National Insurance contributions, which has been agreed and which has to be provided for in the Finance Bill, and I should like to explain what I feel about tax reliefs in respect of those contributions. The present additional amount, which in a full financial year apparently reaches the figure of some £15 million additionally, exacerbates the position.

I will be as brief as I can and put my case as concisely as I can. The position is that people who pay Income Tax gain quite substantial reliefs, amounting I think, to more than £50 million in a full year, and the effect of that is that those who pay Income Tax get their retirement pensions with less personal expenditure than those who, because they have low incomes, no longer pay Income Tax but of course have no benefits under Income Tax reliefs on contributions paid. It means that those with lower incomes have to pay more for their retirement pensions than those who pay Income Tax, and that seems to me to be both unfair and inconsistent.

Once again, we are acting against the best interests of widows. Following the alteration in procedure in the 1948 Act, widows may find, at the age of perhaps 35 to 40, that they are forced to return to work after having been away from work for a long time during their marriage. Many hon. Members, on both sides of the Committee, feel that the widow's position in insurance is rather poor. Yet by this provision many widows, who must find their National Insurance contributions, who do not have the benefit of a widow's pension under the present scheme, and who have a great struggle to pay their contributions, do not get Income Tax relief. The whole position is thoroughly incredible and difficult to understand.

One of the stock answers which I am given by the Front Bench when I speak of those small fixed incomes is that it is very difficult to find a way to help them. I do not dispute that, but it makes me angry and disconsolate when action is taken deliberately to make the position of those living on small fixed incomes worse than is necessary. I have never understood why the Treasury has insisted on carrying on this absurd policy.

I realise that varying sums, now reaching £50 million a year, have been given by the Treasury as partial relief on contributions to National Insurance, and I recognise that the Chancellor could not say here and now that he will withdraw that amount of relief. But there are other ways of using the money in National Insurance which would give everybody a fair deal. I have obtained some information from the Financial Secretary, who always tries to be cooperative in providing information; I wish that the Treasury would also be co-operative in a little action. I have the Financial Secretary's letter here. It is true that he claims that this point is theoretical, but I do not believe that he and the Chancellor, with their great ability and brains, cannot translate the theoretical into practice. It does not seem to me to very difficult.

If this amount which the Treasury gives to the taxpayer were used in National Insurance contributions, there could be an all-round reduction in the weekly contribution, and that would be a much fairer way of dealing with the money. I am certain that my hon. Friends on both sides of the Committee agree—and I have friends on both sides. I hope that right hon. and hon. Gentlemen opposite have noted that my criticisms today are directed to my own Front Bench and not to back-bench Members on either side.

I am sure that what I suggest would be a much fairer way of meeting the National Insurance contributions. I have noticed how often the increased contributions have figured in speeches. Everybody knows that they are a great imposition. I remember that at the time of the last General Election many of us said that those on lower incomes would have a lower contribution to pay. I have not found that that election pledge has made much headway. I am now giving the Chancellor an opportunity of redeeming an election pledge.

5.15 a.m.

I agree that it is rather annoying for people getting tax reliefs that anyone should suggest that new methods of spending this money should be found, but that is what I am suggesting. I am suggesting that if we have got £50 million of Treasury money to spare for a national fund to which everybody has an obligation to contribute, that money should be spent for the benefit of all and not just for the benefit of a few. Although it is rather difficult to ascertain by how much the contributions could be reduced, I understand that it would be in the nature of anything from 5d. to 1s. a week, at any rate for the employed person. That would be a great benefit. It also might provide this stimulus and incentive about which we have heard so much from the Chancellor and others.

I want to make one or two points in relation to a letter which the Financial Secretary to the Treasury sent to me on 7th December, 1960. As I say, I have been fighting this battle for a long time. I have written various letters to The Times and occasionally one of the Treasury Ministers has come to me and asked whether I am going to raise the matter, but it has been very difficult to find an occasion on which to raise it, and I never thought that I would have to raise it at a quarter-past five on a dreary wet morning.

The Financial Secretary said in his letter of 7th December:
"As you know from my Answer to your first Question of 17th November, it is estimated that the amount of tax relief to insured persons on the National Insurance contributions in 1960–61 will be £48 million. If the tax relief were to be abolished, and the Exchequer were to pay this extra amount to the National Insurance Fund, the reduction in the National Insurance contribution that would theoretically be possible for an employed man would be just under 1s.; for other lower rates it would be less. This is perhaps all the more theoretical at present because in 1960–61 the National Insurance Fund is expected to be in deficit to the tune of £94 million, half of which is being met by a special Exchequer payment of £47 million. It would be very difficult to contemplate any reduction in contributions in these circumstances."
That may well be so, but it is also very odd to contemplate that we can give over £50 million in tax reliefs, because if the fund is in deficit it means that it is in deficit over the whole field and not just in the field of the lower income groups. The whole reason for removing taxation is that people are supposed to be hard up. It seems a bit odd that they should be expected to bear their share of increased contributions, whereas those who pay Income Tax and have to pay increased contributions have increased relief on their Income Tax.

I will leave out a paragraph in the letter which does not mean very much to me or to anyone else. [HON. MEMBERS: "Read it out."] Hon. Members opposite ought to understand that I do not miss points to take with the Chancellor. I am not leaving out anything which would be of advantage to the case I am advocating.
"There is also the major point that there could well be repercussions on taxation policy in regard to pensions generally if national insurance contributions for pensions were no longer to rank for tax relief. As you know, contributions to occupational pensions schemes are generally relieved of tax. This is long-established policy, and there would be widespread criticism if it were to be changed; and the growth of these schemes might be impeded."
Nobody suggests that the occupational pensions schemes should be changed. This is a National Insurance scheme covering everyone. Because people have had the benefit of occupational schemes of one kind or another or because there have been all sorts of "top hat" schemes, that is no reason why people who can save in a different way or who have different arrangements with their employers should deprive other people in National Insurance of a fair deal.

The Financial Secretary goes on to say:
"It was recognised in the White Paper on Provision for Old Age (Cmnd. 538, paragraph 17) that 'the growth of occupational pension provision has no doubt been encouraged by the tax reliefs which have long been accorded to contributions'."
That is all right. Nobody wants to argue about that. But this is a National Insurance scheme in which everyone benefits. I know that there has been a slight alteration in the new graded scheme, but the basis of the whole thing on which the tax reliefs were based was that it was a national scheme and everybody was supposed to share in it. So I do not think that that sentence has anything to do with the case.
"Moreover, if tax relief for occupational pensions contributions were withdrawn there would be pressure to exempt the pensions from tax. These pensions are however clearly taxable income and should not be specially exempt; and if they were to be exempted the loss of revenue would be substantial."
There might be a good deal of pressure, but hon. Members will have noted that my Government can refuse to be influenced by pressure. I know that in many matters I am a lone voice, but, really, when we can talk of finding over £50 million for people who pay tax to enable them to get their retirement pensions at a cheaper rate than others, and yet we cannot find about £250,000 for old Regular Service widows, it is absolutely disgraceful. I say the same about other ranks too. It is nonsense. As for this idea about pressure to exempt pensions from tax, there are many people who would do very much better if the National Insurance pensions were relieved of tax when drawn. I think that the whole system should be recast. The Chancellor has always said that everything he is doing he will look at in the next five years, and perhaps he will see, in the next five years, whether that would be a good idea too. At least, I should expect him to do so.

There is one thing which the Financial Secretary did not put in his letter. Perhaps he is beginning to realise that there is some sense in what has been said, although I do not suppose he really is. He has constantly argued hitherto that, of course, there are tax reliefs on the contributions, but when the pension is drawn tax is paid on it. But that need not necessarily be so. When people retire, in the main they drop their income—unless they are people like Dr. Beeching of the British Transport Commission; I do not know whether he is going to drop his pension or not. Thus, when one retires one may not be in the Income Tax paying category. One of the arguments used previously was that if one got one's Income Tax relief now one paid for one's retirement pension when one drew it. That is a very false argument. I was very glad that the Financial Secretary added to this rather peculiar letter by putting that little item in.

The position is intolerable. I do not believe that any hon. Member thinks it is fair that this should be done for people who are in a position to have incomes on which they can get tax reliefs. I am certainly all for reduction in taxation—I agree that taxation is very high—but it ought to be fair. I do not see why those with incomes substantial enough to be taxed should get their retirement pensions at a cheaper rate than those in the lower income groups, who find the contribution very heavy. It is not fair that we should make them pay more for their retirement pensions.

All the other extraneous things that have been put in the letter or have been stated from time to time by Treasury Ministers do not alter the fact that I think that this is monstrously unfair and a waste of public money. I would far rather see that money used for reducing contributions and giving everybody a fair crack of the whip.

I am very grateful to hon. Members for having listened to this. I know that it must be a great bore. But, for once, I have been able to strike a blow for those in the lower income groups. I hope to get some sense out of a Treasury Minister tonight even if he feels rather cross that he has had to sit up a little late.

I should be very surprised if an hon. Member took objection to staying a little longer on the important matter raised by the hon. Lady the Member for Tynemouth (Dame Irene Ward). It is a matter which causes a great deal of concern to many hon. Members on both sides of the Committee.

I am not sure that I follow all the points made by the hon. Lady, or that I would support her wholeheartedly in the case that she has been making. What has she, in effect, been asking for? She has said that if no relief in Income Tax were given on National Insurance contributions the Chancellor would have £50 million which he could use to lower the rate of contribution for everybody. I think that there are other more sensible means of using the money.

First, those who are living on small fixed incomes could be helped in many ways by the Government. But the hon. Lady also mentioned the lower-wage earners. Even some of the lower-wage earners have to pay Income Tax. From time to time I meet widows who, because of their families, have to go out to work, and they very often just come within the Income Tax range. In other words, some widows and some other low-wage earners come within the Income Tax range. If the Chancellor were to grant what the hon. Lady has asked, those widows and the lower-wage earners with whom I am concerned would suffer because this relief in Income Tax for National Insurance contributions was not given.

5.30 a.m.

I would say to the hon. Lady that there are other ways in which she could have helped these people—ways that neither she nor her hon. Friends tried to use—

I agree with the hon. Lady, of course, but my difficulty was that I did not think that it would be in order on this Clause to develop what. I want to do for the people on small fixed incomes. If she wanted to know what I should like to do, I could make another very long speech, because I have all sorts of ideas on the subject. I had to restrict myself to the Clause. But I agree with the hon. Lady; we will get together one of these days and see what we can do for these people.

I do not think that I am straying from the Clause, because I am explaining why I think that it would be wrong for the Chancellor to accept the hon. Lady's case. I am saying that she and her hon. Friends could have helped these people, but did not take the action that it was within their power to take.

The last of the very long debates we had related to the extra contribution that was asked of everyone; from those who were working, widows on small fixed incomes—every single one of them was asked to pay an extra contribution for the National Health Service. The hon. Lady has quoted the figures given to her in a letter from the Chancellor or the Financial Secretary. The saving would amount to about 1s. for the adult male earner, and less for those earning less. The extra contribution is 10d. a week for the adult male and 8d. for a woman.

In other words, the hon. Lady and her hon. Friends who are interested in the small fixed incomes and in the lower-wage earners then had it within their power to do what she now asks. They could have done it simply by voting against the vicious Measure brought forward by their own Government. The hon. Lady has been trying other ways—quite sincerely; I can say that because I know her well—to achieve this purpose.

Quite a number of these people discuss this with me. One thing that particularly worries them is the additional prescription charges. Even if they have a small fixed income, they are very often above the level at which help can be given by the National Assistance Board to get the medicine which they so desperately need when they are sick.

I repeat that the hon. Lady and her hon. Friends could have taken the action which she is now asking the Government to take, by helping to express in the Division Lobby our disapproval of those Measures which are bringing the greatest hardship and worry to those people of whom the hon. Lady spoke. By taking the National Insurance contributions out of relief, the hon. Lady would not help those in whom she is interested. There are several ways in which they can be helped, but not through the fiscal measures of the Government.

I was very interested in the speech of the hon. Lady the Member for Tynemouth (Dame Irene Ward). I recently read two articles in a Newcastle newspaper which were about taxation and reliefs and which were written in the same spirit. With the present principle of financing the National Insurance scheme, those who, but for tax relief in respect of contributions, would be paying Income Tax of 5s. or 10s. a week, get their benefits more cheaply than the less well paid workers who would not pay tax in any case.

The hon. Lady seemed to have a rather narrow view about National Insurance. Examining the problem of how the lower-paid workers can get their benefits as cheaply as those getting better wages leads to the conclusion that the contributions must be on a percentage basis. The National Insurance scheme is for the protection of the aged and sick and injured and it is only by having a percentage basis of financing the scheme that the lower-paid workers can get the benefits as proportionately cheaply as their better-paid colleagues. I think that it is high time that the whole principle and basis of financing this national organisation was changed to a percentage basis.

I was just reflecting the last time that I had the pleasure of hearing my hon. Friend the Member for Tynemouth (Dame Irene Ward) at this hour of the morning was about nine years ago, on an Isle of Man Bill, when Mr. Geoffrey Bing was addressing us and she shouted out to him. "Take a hammer," and this got misreported in HANSARD as "Take that man out." I may not be able entirely to satisfy my hon. Friend tonight, but I hope I shall not induce her to swing a hammer at me or order me to be removed from the Chamber.

My hon. Friend did not give me notice that she would read my letter of 7th December last year, and one rather forgets Departmental correspondence of a few months back. But, listening to her reading it, I thought it sounded reasonably well, and the only fault I could find was that it seemed to me a little wide of this Clause in some respects.

Obviously, we cannot discuss, on this Clause, the whole operation of the National Insurance Scheme, because the Clause does have a very limited purpose directly related to the Clause we passed in the Finance Bill last year. The Clause increases by £3 the general flat-rate tax allowance of £15 for adult employees for National Insurance contributions which was introduced in last year's Act and, of course, the reason why we have a Clause this year is the changes in the flat-rate contributions there have been since last year's Finance Act was passed.

To come to the point which my hon. Friend raised, my hon. Friend has made plain on several occasions, in correspondence with me, by letters to the Press, by Questions and speeches in this Chamber, her view that the tax relief for National Insurance contributions should be withdrawn and the money used to reduce the contribution rates for all contributors. Her argument is that this would benefit those who are less well off at the expense of those who are better off and, in particular, would benefit, she says, people on small fixed incomes with whom she is concerned.

We cannot tonight debate the position in general of those on small fixed incomes, and I would only just say this to her, that I think, with respect, that she rather underrates in some respects our successes, considering the views that she and many other hon. Members on both sides have expressed about this at one time or another. We have considerably raised the limits of old-age relief compared with many years ago and there are benefits for small incomes in Income Tax relief as well.

On the specific point my hon. Friend raised tonight, I can only say two things. The first is that I hold to what I said in my letter of 7th December, that the reduction of 1s. in the contribution was, as I described it in that letter, a theoretical reduction for the reasons I gave. The second is that while the Chancellor certainly has considered all my hon. Friend's representations very carefully, we do not believe that we should depart from the well-established principle that National Insurance contributions should, in principle, qualify for tax relief and income benefits arising from those contributions which pay tax.

I think that my hon. Friend rather underrates the effects of taxing retirement pensions. It is estimated that the yield of tax on National Insurance retirement pensions will be about £40 million for the current year, and therefore, there is absolutely no substance in the argument or in any suggestion that the taxation of retirement pensions does not amount to much in practice.

5.45 a.m.

Although I know that many constituents and a number of hon. Members feel strongly about this matter, and raise it from time to time, it has always seemed to me reasonable in itself that retirement pensions should be subject to tax, because the income circumstances of retirement pensioners obviously vary widely. There is, in effect, a world of difference between a contractual retirement pension related to contributions and something like National Assistance, and to my mind the fact that the retirement pension is related to contributions—something, as it were, contractual—means that it is absolutely right that these pensions should be subject to tax in accordance with the individual income position of the pensioners.

It is for those two reasons that my right hon. and learned Friend cannot agree to the proposal put forward by my hon. Friend, but I can assure her that we have considered the matter carefully. I have absolutely no hard feelings at all that she should have elected to raise this matter, quite properly, at this hour in the morning, on the Question, "That the Clause stand part of the Bill".

The Financial Secretary's remarks are reasonable. The Clause deals merely with the taxation side of the National Insurance contributions, and the adjustment made in it is due to the higher contributions now in operation. If any change were to be made in the tax reliefs for contributions it would obviously be necessary to consider the position of pensions when they came to be taxed. In fact, the whole scheme would probably have to be recast, taking the tax factor into account.

Last year, my hon. Friends and I supported the Chancellor in introducing this flat-rate scheme, although it was subject to some criticism both in Committee and in the Press. I have had a number of letters from taxpayers saying that they are being cheated out of the full relief to which they would be entitled in the normal way upon the contributions paid. In some cases the taxpayers concerned have not fully understood that not the whole of the contribution ranks for tax relief, because some part of it is for sickness and unemployment benefit, and, since neither sickness benefit nor unemployment benefit is taxed, that part of the contribution which is related to those benefits is excluded from the tax relief given. That is the sort of thing that happens when benefits are exempted on the one hand and it is necessary to consider whether a tax relief on the contributions should be given on the other.

These higher contributions were fixed last autumn. They were in the National Insurance Bill. We knew, at the time that the increased benefits for National Insurance were embodied in the Bill, what the contributions were to be. The Health Service contributions make no difference to this relief, because they do not rank for tax relief for the ordinary contributors. The adjustment made in the Clause is, therefore, a direct consequence of the change in the contribution rates introduced last autumn.

We had the fantastic position that the whole of the P.A.Y.E. coding was being done under the old contributions when the new ones were foreseen, and the whole of that work is having to be done again, at the cost of 300,000 hours of overtime, merely because the increased contributions, known about last autumn, could not be incorporated in the coding analysis then under preparation. When one is looking for savings in administration, staff and costs the Chancellor could surely have foreseen—or somebody could have foreseen and advised him—the increased contributions that would have to be subject to adjustment in the Finance Bill this year.

The provisions made in the Finance Act last year for this flat-rate contribution do not come into effective operation. They are in operation at this moment, but they are obsolete, and the recoding now being done is to provide the benefit of the higher deductions for this tax year, to which the provisions of last year's Finance Act apply. I think that a rather serious administrative muddle and I can tell the Chancellor that there is a great deal of annoyance in the Inland Revenue that overtime is having to be worked to do recoding that was known about six months ago.

Question put and agreed to.

Clause ordered to stand part of the Bill.

I beg to move, That the Chairman do report Progress and ask leave to sit again.

I feel that the Committee would like very much to proceed with a debate on double taxation relief agreements, but at this hour in the morning, and in the circumstances, I prefer to move this Motion.

Despite the very strong temptation to go on and discuss these rather simple Clauses, I think that the Chancellor is wise. We have made very good progress and hon. Members will feel that we have had a very good debate, although we should have liked to have heard more from hon. Members opposite. Perhaps if we had we might not be adjourning at this time.

We shall be ready, after having such rest and refreshment as we can get, to resume tomorrow. [HON. MEMBERS: "Today."] In Parliamentary terms I think that we resume tomorrow, as we are still on Wednesday's sitting. But I am not worried about that if it makes hon. Members opposite happy.

Whenever we resume I hope that we shall make rather better progress in terms of Clauses per hour. That does not mean that I am suggesting that we did not make progress today, but I know that the Chancellor wishes to make a little faster progress.

Question put and agreed to.

Committee report Progress; to sit again this day.