New Clause. — (Savings (Pay as You Earn).)

Orders of the Day — Finance Bill – in the House of Commons at 12:00 am on 30th June 1964.

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(1) From the fiscal year 1964–65 any employed person shall have the right so to alter his code number that more tax can be deducted each week under section one hundred and fifty-seven (pay as you earn) of the Act of 1952 than would be so deducted if the code number had not been altered. At any time during the fiscal year such employee would have the right to revert to his actual code number.

(2) As soon as possible after the fifth day of April in any years the Commissioners of Inland Revenue shall issue to each taxpayer a certificate showing the amount of any overpayment in the preceding year. Such certificates shall be immediately encashable at any post office.

(3) If such certificate is deposited in the Post Office Savings Bank, interest at the rate current for deposits in the Post Office Savings Bank per annum shall be allowed on the amount thereof from the preceding sixth day of April.

(4) The maximum amount that may be saved by each employee in any one year shall not exceed 10 per cent. of gross earned income in that year, or one hundred pounds whichever is the less.

(5) The first twenty-five pounds of interest on such savings shall be exempted from income tax.

(6) At the conclusion of each month the Commissioners of Inland Revenue shall transfer to the Post Office Savings Bank such an amount as in the opinion of the Treasury is the equivalent of the savings for the preceding month.—[Mr. W. Clark.]

Brought up, and read the First time.

10.30 p.m.

Photo of Mr William Clark Mr William Clark , Nottingham South

I beg to move, That the Clause be read a Second time.

It will be remembered by the House that a similar Clause was moved on 3rd July, 1961, when we were fortunate in having the support of the Opposition Front Bench. No doubt tonight we may enjoy the same privilege. The arguments put forward on that Clause appear in column 1176 of the OFFICIAL REPORT of 3rd July, 1961. We should get it clear for the sake of subsequent speakers that this is a Conservative new Clause, and that the proposal was made as far back as 1955 at a Conservative Party Conference at Bournemouth.

What we must remember is the position and importance of savings in the country, particularly, as we have seen since the end of the last war, with our method of deficit financing. It is salutary to remember that in 1945 the National Debt was some £21,000 million, and that in 1951 it had increased to £26,000 million—over the five or six years. I assure the Opposition that I am not necessarily making a party point. The National Debt has continued to increase because of our deficit financing, and the latest figures show that it is just over £30,000 million, it having increased by just over £4,000 million over the last 13 years because of deficit financing. If we compare the nearly £5,000 million in the six years between 1945 and 1951 and the just over £4,000 million in the subsequent 13 years, we get into perspective how deficit financing even under the present Administration has been less than under the Labour Administration after the end of the war.

No party can afford to ignore the small savers. Here again, the figures are indicative. Between 1945 and 1951, the total savings—and I agree that it was a difficult time—amounted to £558 million. Since 1951, the total is £14,300 million. In 1951, about £100 million a year was being saved whereas last year the figure was about £1,900 million.

All these savings are not made by millionaires. They are made by small investors. There are 3 million investors on the Stock Exchange and 1 million in unit trusts. I am sure that the Chancellor will agree that we cannot continue the capital expenditure programme unless savings—that is, small savings—remain as high as in the last few years.

What we need, however, is a new approach to savings. I am delighted that my right hon. Friend introduced the National Development Bonds but I wish he had grasped the nettle more firmly and given a tax incentive for all contractual savings, no matter what type. However, a step has been taken in the right direction.

We must remember that some people find it extremely difficult to save although they have the will. Through our P.A.Y.E. system, about 24 million people have code numbers. One is given a code number according to personal allowances and each week, depending on one's income, one's employer looks up the tables and deducts the tax accordingly. For instance, one's code number may be 35, with a salary of £15 a week and tax at £2.

Surely it would not be beyond the wit of the Inland Revenue to extend this excellent machinery for collecting money to the collection of savings. It would be quite easy for that person on a code number of 35 to reduce it to 9 and instead of paying, say, £2 a week, to pay £3 a week instead. Through this manipulation he could pay £1 a week into savings. The beauty of such a scheme is that the saver would always have the money under his own control. If the saver found after a while that he could not save £1 a week but only 10s. he need only revert to a higher code number.

It should not be difficult to introduce such a scheme. I agree that it would be administratively difficult but only for the Inland Revenue. But the Inland Revenue should not be given the sort of consideration one necessarily gives to industrialists because, for the Exchequer, it is essential that our savings increase and anything that would give ease of saving should be operated by the Government.

The National Savings Movement does an excellent job in industrial savings. It has about 50,000 schemes throughout the country, covering about 3 million employees with savings of about £100 million a year. But we must remember that a firm cannot operate an industrial savings scheme unless it has at least 200 employees. If there are fewer than 200, such a scheme is not economic. It does not warrant the appointment of a savings officer to look after an industrial savings scheme. It should be remembered that many firms employ fewer than 200 people, so that, no matter how much good the National Savings Movement does, it does not catch those firms.

The Clause goes on to say that interest should be allowed. So that the Clause shall be kept in order, that interest has to be proposed at the Post Office rate of 2½ per cent., but that is a very low rate of interest. It also proposes an exemption limit of £25 for the interest. It is wrong that a man who saves through the Post Office should get up to £15 a year interest tax-free, while a man who saves through unit trusts does not get the same exemption. There is no difference between the two kinds of savers. If a man prefers to save through the Post Office, let him do so, but if another prefers to save through unit trusts, he should have the same sort of exemption. I know that it is rather late in this Budget for my right hon. Friend to do anything about it, but I hope that he will think about this subject and do something for savers when he introduces next year's Budget.

Savings must be made administratively simple for the saver. I am sure that hon. Members opposite will agree with me that the next requisite is that savings should be secure. I hope that hon. Members opposite will forgive me if I say that their suggested wealth tax could not possibly give confidence to the small savers.

Photo of Mr Douglas Houghton Mr Douglas Houghton , Sowerby

Is there anything in the new Clause which would maintain the value of savings?

Photo of Mr William Clark Mr William Clark , Nottingham South

We must be careful about any suggestion that either side has done better than the other about inflation and maintaining value and so on. Speaking from memory, I think that during the six years of Socialist administration the £, valued at 20s. in 1945, fell to 15s., while in 13 years of Tory administration the £'s value has fallen to 14s. 10d., so that it took six years of Socialism for the £ to fall 25 per cent. and 13 years of Tory Government for the £ to fall by the same amount. The hon. Member for Sowerby (Mr. Houghton) should not make these accusations about the Tory Party, because the Tory record, however judged—inflation, fall in the value of the £, or any other way-is—but you would rule me out of order, Mr. Deputy-Speaker, if I did not return to the Clause.

When I gave way to the hon. Member for Sowerby, I was saying that savers had to have confidence and I mildly suggested that the suggested wealth tax of the party opposite did not give confidence. Introducing his annual once-and-for-all levy, the late Sir Stafford Cripps said that one could not continue to do this annually, because that would discourage savings. I am sure that hon. Members opposite will accept that that is what Sir Stafford Cripps said, and it is an indictment of their proposed wealth tax. I accept that, like many other parts of Socialist policy, one never gets the details. One merely gets an announcement so that, rather as with the Short Titles of Bills, by reading only the title, it is very difficult to know what is inside.

10.45 p.m.

This is the second time that I have moved a Clause of this kind. The hon. Member for Sowerby said that he had been standing at that Box for 15 years—I hope that he will stand there for another 15 years—fighting for one thing after another. The inference to be drawn from that was that in the end he got his own way. I hope that my hon. Friend the Economic Secretary will be able to do something about savings before 15 years elapse.

I am delighted that he is going to reply to this debate, because I remember very well that when I moved a similar Clause on a previous occasion he was kind enough to support me. I would not like to suggest that it is a question of policeman turned robber, but I hope that my hon. Friend will hold out some hope that the Government are looking at the question of savings, and that through P.A.Y.E. they will be able to make it easier to save, and thus expand savings from their present high rate to an even higher rate so that we can get capital investment in this country and we can go forward knowing that a Tory Administration will maintain the value of the savings. If we can do that, I am sure that everybody will be satisfied, even the hon. Member for Gloucester (Mr. Diamond) who supported me last time.

Photo of Mr Donald Wade Mr Donald Wade , Huddersfield West

I listened with interest to the hon. Member for Nottingham, South (Mr. W. Clark). He says that he has been advocating this since 1955. I am sorry that he has met with so little success.

This proposal differs in a number of respects from a proposal entitled "Own-as-you-earn" which I have been advocating for many years, and which has been debated in this House from time to time.

I understand that under this proposal certain moneys would be set aside out of earnings through P.A.Y.E. Unlike the famous, or infamous, post-war credits, I gather than these savings would carry some interest, and that the money would be deposited in the Post Office Savings Bank. No part of the savings would be invested in equities, and therefore that would limit the possibility of capital appreciation offsetting the fall in the value of money.

One of the problems with which we are continually faced when advising small savers is to explain how they would benefit from the capital appreciation which is to be gained from industrial shares, without risk. One is bound to point cut that the proposed form of saving would not gain any of the positive benefits which may be derived from investments more widely spread.

It is clear what the tax position is. It may be that I did not follow the hon. Gentleman when he outlined the proposals contained in the Clause. I take it that the saving is to be made out of income that has not suffered tax. If that is so, is there any point of time at which tax will be payable?

I support the proposal that the first £25 of interest should be exempt from Income Tax. There is a great deal to be said for applying the provisions at present applicable to the Post Office Savings Bank to a much wider measure of savings. During the Committee stage I advocated the extension of this principle to building society interest, and I therefore support this proposal to exempt from Income Tax a certain part of the interest on savings.

There is a much more ambitious scheme which I would advocate, but cannot discuss tonight, which would involve industrial shares and deferring the payment of Income Tax until the shares are withdrawn or sold. That would have considerable merits. The hon. Gentleman's proposal is a much more modest one, and I see no serious objections to it as a means of encouraging savings. I hope that at long last, after these many years of advocacy, he will be successful.

Photo of Mr Roger Cooke Mr Roger Cooke , Twickenham

My hon. Friend the Member for Nottingham, South (Mr. W. Clark) has made a powerful plea for National Savings and Post Office Savings, and has indicated the necessity for schemes such as this in order to create savings for Governmental purposes such as housing, schools, nationalised industries, roads, and so on—all very desirable purposes. But in America there is a scheme somewhat similar to this, which is called the company thrift scheme, in which employees can set aside so much money every year out of their incomes, and to which their companies often contribute. That money can be applied not only to National Savings at the end of the year but also to the purchase of industrial shares, unit trusts and so on. Such a scheme helps both the Government and industry. I support my hon. Friend's scheme very warmly, but I ask my right hon. Friend the Chancellor to think more about the American precedent.

It is obvious that in the future we will have to have more savings, as the capital requirements of the nation grow, and we shall be able to get them only by means such as this—by deductions from salaries and wages at source—because people cannot be expected to wait until the end of the year and then put away £50 half as easily as they can be persuaded to have £1 a week taken from their salaries. I therefore ask my right hon. Friend not only to consider the general principle but also to ally it, if possible, with a wider scheme such as is operated in America at present.

Photo of Mr Anthony Crosland Mr Anthony Crosland , Grimsby

I intervene briefly to point out that there is no subject on which more mythological nonsense is talked by the party opposite than the subject of National Savings. Listening to the speech of the hon. Member for Nottingham, South (Mr. W. Clark) I felt that I was not in the real world at all. He talked about the National Debt increasing under a Labour Government. The National Debt was created by William Pitt the Younger, a Tory Prime Minister, in the early years of the French revolutionary war. It is entirely a Tory creation.

He went on to make a number of other dubious remarks. He said that he was on the side of the small savers, and that his whole speech was devoted to the interests of the small savers, and then he went on to say that their insecurity would be increased by the Labour Party's proposal for a wealth tax. Nobody but he imagines that the wealth tax is intended to deal with anything but the minute proportion of rich savers. How on earth he imagines that it can have anything to do with the mass of small savers whom he has in mind is completely beyond me.

He said that if we had had more savings in the last few years we would have had more investment. The Chancellor would certainly give the lie to his hon. Friend on that. Investment has not been held back in the last few years by any lack of savings; it has been held back by a lack of incentives to invest.

Photo of Mr Frederic Bennett Mr Frederic Bennett , Torquay

What is the Labour record on savings?

Photo of Mr Anthony Crosland Mr Anthony Crosland , Grimsby

I have been talking about the last few years. I was making the quite sensible proposition that investment over the last few years has not been held back by a shortage of savings but by a lack of incentives to invest. If the hon. Member for Nottingham, South, who I understand has good connections in the financial world—he is a well-known financial expert—wanted seriously to increase savings he would not come along with a gimmick new Clause, but would seek to deal with some of the serious impediments to savings imposed by the powerful financial institutions.

Photo of Mr William Yates Mr William Yates , The Wrekin

Will the hon. Member tell us what they are? We are interested in his argument.

Photo of Mr Anthony Crosland Mr Anthony Crosland , Grimsby

I was objecting only to one seated and one standing interruption. There are impediments to saving of a much more serious character than the hon. Member for Nottingham, South has suggested. Anyone who tries to save on house purchase in combination with borrowing from an insurance company is absolutely out of his mind. Before the term of the loan has run out if he wants to move to another house what alternative has he with the endowment insurance policy he has taken out? There are many ways in which we could increase small savings without using the gimmick suggested by the hon. Member.

The whole matter has to be treated more seriously without any of the politics involved—[HON. MEMBERS: "Oh."] There was a lot of politics in the hon. Member's speech. The whole question has to be treated in a nonparty manner. We shall not get more savings if hon. Members merely throw around from one bench to another how the other party's policies militate against savings. The only way to get more savings is to treat the whole matter in a non-party manner, which the hon. Member did not do in his speech.

Photo of Mr William Yates Mr William Yates , The Wrekin

This has been an interesting debate. We should think of the moulder on the shop floor who, when the time comes for him to do a certain amount more work, analyses the matter and then says, "I shall not do more because I should then have to pay more in tax." This is simple shop floor logic. If we could provide a method whereby we could say to him, "If you do another four or five hours work the country will be grateful to you and you can keep more of the money for yourself", he would be glad to accept that. This Clause is a good one because it would get over the present mentality there is now on the shop floor. The worker would be able to save, and have his tax code altered by doing more work.

Subsection (3) says: Such certificates shall be immediately en-cashable at any post office. I do not quite understand how this would work. Presumably the tax would be reduced during the time he was saving and immediately he cashed the savings the code would revert to the original number. When I examined this, I wondered exactly what my hon. Friend the Member for Nottingham, South (Mr. W. Clark) envisaged would happen to the average person endeavouring to take part in a savings scheme of this nature. As a general principle applying to the country as a whole, a system should be worked out to encourage a person to save and have his code number reduced.

The Inland Revenue has never been interested in savings from Income Tax. We have to look at the basic principle on which the Treasury works. We cannot ask the Inland Revenue to consider altering taxation as a method of saving. The Treasury and the National Savings Movement are two completely different departments. The Revenue has the job of collecting money, and a Clause such as this which would reduce the amount collected would not interest it. Therefore, when we consider methods of relieving taxation we cannot expect sympathy from the Treasury Bench. It is all right to suggest that money should be put into the Post Office or Development Bonds, but to ask the Treasury to apply a system which would encourage people on a shop floor to save through Income Tax would be completely beyond its understanding. Although I am in sympathy with the principle of the Clause, I do not think the Treasury mentality could understand it or attempt to apply it.

11.0 p.m.

Photo of Mr Charles Loughlin Mr Charles Loughlin , Gloucestershire West

I am glad that the hon. Member for The Wrekin (Mr. W. Yates) intervened, because he has introduced a new character into our political life; instead of the mythical engineer we have the mythical moulder.

I have been associated with the trade union movement for many years, and I am fascinated by all these mythical industrial workers who decide at a given point that they will earn no more but will go home. It is a queer form of industrial organisation which lets its workers do that. In any event, I am at a loss to understand what it has to do with the Clause, and perhaps the hon. Member for Nottingham, South (Mr. W. Clark) will explain it to his hon. Friend or to me, as I read the Clause differently from the way in which his hon. Friend reads it.

The Clause is supposed to be an incentive to workpeople to ask their employers to deduct money from their wages. The hon. Member suggested that if a worker were taxed £2 a week, he could arrange with his employer to have £3 deducted, and that £1 a week would go into this savings fund. If we tell the workers "We will devise an easy way whereby you can save money," the incentive to them would not be restricted to the easy way but would be extended to that which they were likely to receive as a result of the payments.

Photo of Mr Charles Loughlin Mr Charles Loughlin , Gloucestershire West

If the hon. Member will sit quiet a minute I will put it in simple terms. According to the hon. Member for Nottingham, South, the Clause is an incentive in two ways. First, it enables the employee to arrange with his employer for a deduction at source. I suggest that there is reason to suppose that the worker in industry will ask, "What do I get in addition to the simple incentive of deduction at source? What interest shall I get?" The hon. Member for Nottingham, South tells me that there are two ways in which the worker can have the money credited to him. First, at the end of the tax year he will be presented with a certificate encashable at the Post Office, and if he deposits the certificate in the Post Office he will receive the current Post Office rate of interest. What does he get in the first year? If he decides, having saved a certain sum week by week, to cash his money after the first year, does he get any interest on his saved money? The answer is "No" and it is obvious that this is no incentive at all.

Is the industrial worker to be told, "Here is an incentive. You can save your money. We will look after it for you, although you will get no interest on it. On the other hand, if you walk down the street and save it in unit trusts or the bank you will get interest on it in the initial period"? Does the hon. Member for Nottingham, South think that industrial workers are fools? It is obvious that this is no incentive, but just a veil designed to enable the hon. Member for Nottingham, South to make some cheap political propaganda on the floor of the House. It will stand him in no good stead, for he will not be here after October.

Photo of Mr Bruce Millan Mr Bruce Millan , Glasgow Craigton

I had not intended to intervene, but I do so following the remarks made by my hon. Friend the Member for Grimsby (Mr. Crosland). I do not believe that even the hon. Member for Nottingham, South (Mr. W. Clark) put this forward as a serious proposition. If he did, and if the Clause has been going around in its present form since 1955 I am surprised, because anyone reading it can see that it is full of practical defects. A Clause of this sort could not possibly work in practice. Since I give the hon. Member for Nottingham, South credit for having a considerable knowledge of our P.A.Y.E. structure, I cannot believe that he considers that this proposal would work.

The hon. Member for The Wrekin (Mr. W. Yates) could not have been more wrong in the illustration he gave about a proposition of this sort acting as an incentive to a worker to work overtime by placing some of the money earned in overtime in a savings system of this kind. It would have the opposite result, because a scheme of this sort would automatically reduce the worker's code number and thereby reduce the allowances granted for P.A.Y.E. purposes. Such a worker would, for his overtime, pay at a higher marginal rate of tax than under the present P.A.Y.E. system. Far from acting as an incentive by giving him more in his pay packet, the worker would find himself paying substantially more in tax than at present. I make this point in an effort to demonstrate one of the defects of this proposal but not as a really serious point, because I cannot regard this as a really serious proposal.

Photo of Mr William Yates Mr William Yates , The Wrekin

I cannot say what my hon. Friend the Member for Nottingham, South (Mr. W. Clark) thinks about the seriousness of his proposal. All I said was that, as a result of discussing this matter with the sort of people I had in mind, it seemed that if there were a system of this sort in operation it would enable them, when working overtime, to have their code numbers automatically reduced, and that would be a means of saving. This would, I suggest, be a good thing for the country. I said no more than that.

Photo of Mr Bruce Millan Mr Bruce Millan , Glasgow Craigton

I have no doubt that the Clause was tabled with good intention, but on this sort of occasion I always recall what Bernard Shaw said about good intentions. I think his remark applies to this suggestion.

The remarks of the hon. Member for The Wrekin have no bearing on the Clause because of the obvious defects of the proposition. Consider, for example, subsection (4) which provides a maximum which it would be almost impossible to work out in practice. If the hon. Member knows anything at all about how P.A.Y.E. works he will know that it is impossible to calculate what a change in a code number would mean in taxation liability over a year, because one must first know what the total income would be and one cannot estimate that at the beginning of the year. Therefore subsection (4) means nothing. The idea that one can change back and fore from one code number to the other, as the hon. Member wishes, is nonsense, because P.A.Y.E. works as a cumulative system and the taxpayer would have to choose the code at the beginning of April.

There are all sorts of other technical difficulties. There is the question of a certificate of over-payment and how the Inland Revenue is to distinguish between overpayment because of mistakes in personal allowances and because of voluntary choice by the taxpayer of a lower code number than the one to which otherwise he would be entitled.

It is an appalling waste of the time of the House that this kind of thing should come forward year after year. There is nothing in it in the way of encouraging workers to save that cannot be done under the ordinary industrial savings schemes which operate in thousands of factories. We all want to encourage these and if anybody were to come forward with ideas for the Government to encourage the growth of industrial savings schemes one would treat his views with respect. I agree very much with my hon. Friend the Member for Grimsby that, quite apart from the wider considerations of savings, where the hon. Member for Nottingham, South was misleading in his opening speech, this is a gimmick and not worthy of the attention of the House

Photo of Mr Maurice Macmillan Mr Maurice Macmillan , Halifax

The House will be aware that I was familiar with this Clause in another capacity or, if I may so put it, in a previous incarnation where one could ignore its imperfections and concentrate on its merits. I do not intend to ignore the merits of the general case put by my hon. Friend the Member for Nottingham, South (Mr. W. Clark) but I must concentrate on the imperfections of the Clause, some of which have emerged in the debate.

My right hon. Friend the Chancellor of the Exchequer is sympathetic to the general idea underlying the Clause, that is the encouraging of savings, and small savings in particular. He showed that sympathy in his Budget speech but, as the hon. Member for Grimsby (Mr. Crosland) pointed out, and I hope he will forgive me if I do not follow him into the detail of his economic argument, the need is for a broader approach. I believe that my hon. Friend the Member for Nottingham, South would also agree. This is what underlay the Chancellor's intention to go into the matter, and initially to examine contractual savings under the National Savings Movement.

I hope that the hon. Member for Grimsby will agree that future investment will require more savings and that it may be a good thing for social and economic reasons if saving includes small savers, particularly in order to avoid the greater part of our financial structure being in the hands of large institutions. The hon. Member quoted one form of savings as unsatisfactory and I think that he was saying that the time had come to look again at some of the methods already provided for small savers so as to make certain whether they are or are not as well suited as they should be to modern conditions. We have seen certain shifts in emphasis already with the growth of special departments—the trustee savings banks, for example—and there are various criteria which must be met, including, for instance, the need for liquidity for small savers and, equally, some form of incentive for long-term saving. The idea contains the contractual, tax relief and P.A.Y.E. elements.

11.15 p.m.

The hon. Member for Huddersfield, West (Mr. Wade) pleaded for a variation. When he and my hon. Friend the Member for Twickenham (Mr. Gresham Cooke) got going, I began to think that there would be nearly as many savings schemes as there were speakers in the debate. The hon. Member referred to the idea of a company thrift plan to facilitate small savers saving through industrial schemes. The hon. Member for Glasgow, Craigton (Mr. Millan) would probably admit that there is difficulty in getting employers to run these schemes, which sometimes are administratively complicated, particularly for smaller firms. Anything of this nature which is proved on examination to be helpful should not be rejected out of hand.

I must deal first with some of the general points of the proposition. As has been pointed out, there are serious difficulties. I am not altogether happy about associating National Savings as directly with taxation as has been suggested. There would be danger of considerable confusion in people's minds—for example, about whether their deductions were made for tax or as savings. Certainly, the existing P.A.Y.E. machine is not capable of operating a scheme of this kind without a very large expansion of staff.

The unsatisfactory nature of the scheme would not be confined to the Inland Revenue but would extend to employees who used it, since nobody would know his position during the course of the year. The essence of Income Tax, whether paid directly or indirectly, is that it is an annual tax. The P.A.Y.E. system is merely a method of spreading tax deductions for an individual throughout the year. For the scheme to be administratively possible and reasonably certain for the taxpayer, it would be necessary for it to be done in such a way that large adjustments do not have to be made at the end of the year. I very much fear that the scheme would introduce these difficulties, both administratively for the Inland Revenue and for the taxpayer.

My hon. Friend the Member for Nottingham, South, who introduced the Clause, said that one of the advantages of the scheme was that the saver would keep control of his money all the time in the sense that he could draw it out or alter his coding number whenever he wished. This factor would make it even more complicated to administer and would increase the possible adjustments which would have to be made at the end of the year.

I do not want to labour the difficulties of the Inland Revenue, but it is important for taxpayers to know their personal tax position as soon as possible after the end of the tax year. Having to make what amounts to a technical assessment in each case when the coding was varied and having to make an assessment more or less at the year's end would cause delays that would be burdensome for the taxpayer as well as for the administrative machine.

I think that the difficulties which have from time to time been brought forward about this scheme so far as employers are concerned are not, possibly, so great as has been suggested, but there are other technical points with which I do not think I need weary the House. I would, however, mention the special problems about the Post Office arrangements for freeing the first £25 of interest earned under the scheme. I would also add that I ought to correct for the purposes of the record the point which has been made by the hon. Member for Huddersfield, West. So far as I see it, the money which has been deducted and saved is not tax-free in the sense that the reduction in the coding figure would affect only the actual amount of money saved. The residual coding figure is, therefore, on the gross total income, and not on the particular savings. I think that that would be so from the wording of the Clause as it stands.

On the general question of tax relief, we have not an easy problem. I thought that the hon. Member for Gloucestershire, West (Mr. Loughlin) put his finger on one of tthe difficulties, namely, to find a form of incentive which is attractive enough from the point of view of the saver, but not so attractive that it would be unbearably expensive from the point of view of taxpayers generally.

I should like now to deal with some of the administrative problems. First of all, it is necessary that any form of tax relief to encourage saving should be manifestly fair as between all the taxpayers concerned. It is also necessary that it should not mean that the Government had to pay a very great deal too much for its moneys in order to achieve a level of saving which could be achieved by other methods. We must remember that taxation inducements for this purpose may be too expensive and that if the saving was more direct, as for instance in industrial shares or through unit trusts, tax concessions might not only be too expensive but also unfair to other taxpayers. That is not to say that such concessions are impossible, but I cannot advise the House to accept this Clause for the other reasons which I have given.

A further point is that any plan for improving the inducements to small savers must, if it is to work at all, be comprehensive in its nature. It should, therefore, include the role of the National Savings Movement and the trustee savings banks, and so on, in its character. My right hon. Friend the Chancellor said in his Budget speech that he was initiating a study of the whole problem of contractual saving and hon. Members will know that, in answer to a Question only this afternoon, we stated that this was in progress. Interested parties in the matter of small savings are being consulted, and their ideas will be very carefully studied. Then as soon as it is possible to do so, we shall report on the results of this study. Meanwhile, I really cannot recommend to the House that it should do anything but reject this Clause.

The methods which it proposes are inconsistent, and if account is taken of the interests of the general body of taxpayers it will be seen to be unsatisfactory. The problem of contractual saving, both in the National Savings Movement and its related bodies, should be studied before the nation is committed to any detailed scheme such as is here proposed.

Photo of Mr Douglas Houghton Mr Douglas Houghton , Sowerby

The speech which the Economic Secretary has just made must have been rather a painful experience for him. We remember so well his eloquent speeches in support of this new Clause in previous years, and I am sure that it has been a sad experience for the hon. Gentleman to have to turn it down.

I will not detain the House for more than a few minutes, but I think that it should be said from this side of the House that we are, of course, as keen on promoting private savings as are hon. Gentlemen opposite. Quite frankly, however, this scheme is just a collection of nuts and bolts which could never be erected into a working instrument for regular savings.

My hon. Friend the Member for Glasgow, Craigton (Mr. Millan), with his close knowledge of the working of the Income Tax machine, criticised this proposal on grounds which were perfectly valid. I think that hon. Members on both sides of the House have realised some of the difficulties in grafting a scheme of this kind on to P.A.Y.E. There are all sorts of problems involved, both psychological as well as economic and administrative. It is just not the way of doing it.

We have not yet found a satisfactory method of bringing to bear the element of self-discipline, of regularity and of an adequate return on money invested for which we are all looking as an incentive to small private savings on quite a big scale. This proposal really is a P.A.Y.E. nightmare. It would drive the Inland Revenue scats. And talk about more staff. It is not staff that we want but computers which have not yet been invented to work this scheme.

Indeed, the hon. Member for Nottingham, South (Mr. W. Clark) who has been trundling this Clause around for a number of years ought to have thought it out better by now, or abandoned the idea or got a new one. The hon. Member for The Wrekin (Mr. W. Yates) is geting agitated. I am not talking about the Yemen but about the Finance Bill.

Photo of Mr William Yates Mr William Yates , The Wrekin

The hon. Gentleman must surely sympathise with the idea that this scheme covers the vast area wherein great savings can be made. The Yemen is a small country, but we are now dealing with a vast number of people and vast sums of money. Surely no computer that was ever invented could achieve this object. This more than any other must be the area in which we must look in future for our country's savings.

Photo of Mr Douglas Houghton Mr Douglas Houghton , Sowerby

Yes, I am sure that the hon. Gentleman had better stick to the Yemen.

We all understand how vast a matter this is and how desirable it is. We are just trying to find a workable scheme and we want something which will also provide the necessary incentive to savings on this scale.

I was threatening some of my hon. Friends a moment or two ago that I would be provoked into giving to the House my famous lecture on what is going to happen to the unsophisticated investor in the future, because he is not going to remain unsophisticated all the time. He will soon want a better investment for his savings than those now on offer in the various institutional forms of savings which we have at present.

I will not go further into the matter now except to say that I welcome, for example, the new National Development Bond as a step in the right direction. That, undoubtedly, is an attempt to bring a new Government issue into harmony with the expectations of the small investor today and which combines a reasonable return of interest with a reasonable accessibility to his savings when he wants them. I hope that the new National Development Bond will do well because I think that it is an innovation that deserves encouragement, and, if I may say so, I propose to say something to this effect in a broadcast which I shall be making very shortly. I do not mind advertising a good thing, even though it comes from a Tory Government.

11.30 p.m.

Obviously, we shall have to leave this aside. We cannot press the House to accept a scheme like this. We must go on looking for a satisfactory means. We call it contractual savings, and this is probably a suitable term for it. But this, I believe, is one of the big challenges of the future, because the contribution of surplus disposable incomes in an increasingly prosperous society will become of greater and greater importance for use for Government purposes as it is available at the present time for all sorts of consumer spending. In fact, savings will have to be put in competition with all the other distractions and attractions which are available to the person with a part of his income which he feels he can dispose of without prejudice to his main requirements in life. That is really what savings will be. It will be a vastly important question. It is important to notice that, as the Economic Secretary told us recently, private savings are increasing more rapidly than corporate savings. That is also an interesting sign, and I think it will be a tendency that we shall wish to see go still further.

With that blessing on the general principle and a very half-hearted commendation of the mechanics proposed, I hope that the hon. Member for Nottingham, South will withdraw the Clause and not embarrass the Chancellor by pressing it to a Division. I can promise the House that by this time next year, I have not the slightest doubt, something more workable, more attractive and with greater possibilities of success will be put to the House by a Labour Chancellor of the Exchequer.

Photo of Mr William Clark Mr William Clark , Nottingham South

My hon. Friends and I realised when we tabled the Clause that it was drawn very narrowly, and we are not particularly wedded to the wording of it, but I am tempted to accept the advice of the hon. Member for Sowerby (Mr. Houghton), who has great knowledge of these tax matters, and, consequently, not to press the Clause to a Division. However, I think it has been a useful debate. With the permission of both sides, I beg to ask leave to withdraw the Clause.

Motion and Clause, by leave, withdrawn.