Orders of the Day — Budget Proposals and Economic Situation

Part of the debate – in the House of Commons at 12:00 am on 18 April 1956.

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Photo of Mr Roy Jenkins Mr Roy Jenkins , Birmingham Stechford 12:00, 18 April 1956

Maybe they can, most do. That is the difference. But so long as nationalised industries, which could do so are not allowed to make these monopoly profits, then it is desirable that there should be a good degree of public saving, unless there is to be an increasing amount of public debt to the private sector.

The other thing which the Chancellor said about the National Debt yesterday which I shall mention was that the burden was so great that it was important for this reason alone—and no doubt also for other reasons—that we should not return to a deflationary situation which, for this purpose, he defined as a situation which would increase the burden of the National Debt as a proportion of the national income. But can it have escaped the Chancellor that in the last year, under the policy which he is pursuing, we have had from a National Debt point of view all the disadvantages, precisely as he defines it, of a deflationary situation without any of the advantages of falling prices? Because, owing to the monetary policy which he has pursued, we have in the past year, despite an inflationary situation and despite rising prices, had the real burden of the National Debt increased substantially.

It is clear from the Financial Statement that the above the line cost of servicing the National Debt was, in the last financial year, over 12 per cent. greater than in the previous financial year. That was in a situation in which the gross national income product went up by about 5½ per cent. Therefore, under the ineffective credit restriction, dear money policy—ineffective from the point of view or curbing inflation—which the Government have pursued, we have from the National Debt point of view had all the disadvantages which the Chancellor said he was determined to avoid without any of the advantages which we might regard as being a normal accompaniment of it.

I want to revert for a short time to a point which my right hon. Friend the Member for Huyton (Mr. H. Wilson) developed to some extent this afternoon. It is the question of the broadening of the basis on which direct taxes—Income Tax, Surtax, Estate Duty—are levied in this country. My right hon. Friend referred to fiscal privilege in a very apt phrase in this connection. I also thought that to judge from the earlier part of the speech of the President of the Board of Trade, my right hon. Friend might never have delivered that part of his speech. Certainly, the President of the Board of Trade made no attempt to refute the argument which my right hon. Friend put forward. Equally, he behaved as if no one for one moment questioned but that the present nominally very high rates of Surtax were paid by all people who ought to pay them.

The right hon. Gentleman went on to say "Look how heavy Surtax is." This refers to the point made by the hon. Member for Shipley. The right hon. Gentleman said that in order to enjoy today the standard of living that he would have got with a gross income of £2,000 a year before 1939, a man now needed a gross income of £12,000. Indeed, he went further than that and said that in order to enjoy the standard of living that could have been obtained with £3,000 a year gross income before the war, a man would today need a gross income of £34,000.

I thought that those figures, which the President of the Board of Trade presumably thought helped his case, or he would not have used them, were a great reinforcement of the case which my right hon. Friend had previously made. Does the President of the Board of Trade suggest that there are not many people today enjoying a standard of living equivalent to that which a gross income of £2,000 or £3,000 a year before the war would have produced? Surely he is not going to deny that that happens in the case of very many people. Does he suggest that the people who today enjoy such a standard of living declare to the Inland Revenue gross incomes of over £12,000 in one case and of £34,000 in the other? I am absolutely sure that that is not the case. There is no doubt at all that there is a great deal of tax avoidance going on in this way.

The President of the Board of Trade went on to say that the middle class in general were very hard hit by the tax system today. He even went so far as to say that the middle classes have not shared in our recent prosperity. If the statement is put in terms as general as that, I do not believe for one moment that it can be true, or that even the President would, on consideration, believe it to be true. There are, of course, within the broad social category of the middle class many people who are enjoying precisely the fiscal privilege about which my right hon. Friend was talking this afternoon. It is most important that the Chancellor, even more than the President of the Board of Trade, should devote himself to the question of this fiscal privilege.

In the first place, there is a very clear case made in the minority Report of the Royal Commission about the two classes of Income Tax payers. There are, first, those who are assessed under Schedule E, the majority of ordinary salary earners, who have to prove that their expenses were necessarily incurred in the course of earning their incomes, and there are those assessed under Schedule D, who have to show that their expenses were wholly and exclusively incurred, but not necessarily so incurred. There is an enormous difference there.

There is the question of capital gains, which has been dealt with at some length and into which I do not wish to go any further, except to mention it. There is the question of seven-year covenants of one sort and another, and there is the question of the arrangements of person's affairs in such a way that they manage to enjoy a very high standard of living with a very small income under what the Inland Revenue regards as income. There is no doubt that this happens to a large extent. At least some members of the Government Front Bench will be acquainted with Mr. Nicholos Kaldor's book on "An Expenditure Tax."

I wish to refer to only one set of figures, but a very striking and important set of figures, which he produced. They were figures which were designed to show, and did show very conclusively, that the bigger the estate, the bigger the aggregation of property, the smaller the yield as declared for Surtax purposes from that estate. If we take the 20,000 biggest estates over £100,000 in size, the average yield from them is not more than 2¾ per cent. per annum. As we go further down to those between £50,000 and £100,000, the yield rises to 3¾ per cent. Both yields, I would say, are artificially low and there is a great deal of tax avoidance in both groups, but more so the higher up the scale.

These are very important figures which suggest that there is a good deal of avoidance—avoidance, I stress, not evasion. There is an important difference between evasion and avoidance. Evasion sends one to prison if caught out, but avoidance is an arrangement of our affairs, with the best possible professional advice, so that one pays as little tax as possible. There is a very important difference between the two.

I would say that there are two important things which are wrong with our tax system at the present time. The first is that by allowing this degree of avoidance, by allowing loopholes of this size, what we have, in fact, done is to make the possession of property relatively more desirable than the obtaining of earnings. This seems to me to be a most undesirable slip from the point of view of both sides of the Committee. To take an example, in 1914 a man with £50,000 in capital and a moderately successful barrister or doctor, earning £2,000 or £3,000 a year, a member of the sort of professional middle-class which hon. Members opposite are always talking about, were almost equally well off in every respect. Today, under the way in which the tax system has developed, there is no doubt at all that the man with £50,000 capital is far better off than the man with no property but with an income equivalent to that which £50,000 would normally produce.

The second thing from this point of view which is wrong, and seriously wrong, with our tax system is that we are engaged, all of us to some extent, in a subtle form of moral deceit whereby we have very high nominal rates of tax to which members of the Government can point but in which we have glaring loopholes through which supporters of the Government can escape. That seems very undesirable. By perpetuating this system the Chancellor of the Exchequer is in fact the real enemy of that section of the middle class, with no expenses to charge and perhaps with large families to educate, which really has a case for showing that they are hardly treated, because it would be intolerable from the point of view of hon. Members on this side of the Committee to assist even those comparatively worthy people at the expense of people lower down the scale who were still less well off. But it would be reasonable to assist them at the expense of those people who live on fiscal privilege, to use the phrase of my right hon. Friend the Member for Huyton. I think that by not tackling this problem the Chancellor has missed a very great opportunity indeed in this Budget.