I have listened with great interest, as one always does, to the hon. Member for Lewisham, West (Mr. Dickens), in his contributions to finance debates. I listened particularly carefully to what he had to say about the union attitude towards this Budget and general financial policy of the Government. I say frankly to him that over these last two years I have been amazed that the trade union movement has continued to work as it has done with the Government in view of the way in which the Government have managed the economy.
It is all very well for the Government to come along and paint a picture of difficulty and problems facing us all, and then painting a picture of further privation in the near future in the interests of long-term solvency and benefits to come at a later date. One can accept that for the first year; one might accept it for the second year. Then in the third year, when we are told that the worst is over and it is "steady as she goes", halfway through that we have the biggest crisis of all. When, in the fourth year, we get the same old story about the difficulties over the next two years, more hardship and more forgoing of the hopes that we all had for a better future, then one can understand how people can get tired of forgoing their legitimate hopes and aspirations for the betterment of society. This is the effect in the country. People are tired of promises. They want to see some results.
I was also interested in what the hon. Gentleman had to say about the position of property here and the United States. One will not get a redress of this position unless there is a much greater incentive and a capacity to earn greater incomes in this country. In America, one is not subject to the top tax figure until one reaches £150,000, and that top rate of tax is far less than the figure in this country of over 90 per cent.
Because people can earn large incomes and can save and invest those incomes to a much greater degree than we can in this country, there is the creation of new wealth and the revolvement of capital and the creation of new capital for the benefit of everybody in the country. This is the sort of society and economy which we want to create for this country.
Apart from the fact that this is the fourth Budget running which has raised additional taxes, the great criticism of it is that again there is not the slightest incentive in it for greater effort and saving. This is the only country, certainly in the Western world—and I would say in the whole world, because behind the Iron Curtain there are other incentives—which has almost a complete ceiling on the amount of income which one can receive in a year. Above a certain figure, over 90 per cent. is taken away in a normal year, and whenever there is a "once-for-all-tax" it is almost 100 per cent.
The time is overdue for a complete review of our taxation system, and particularly of the relationship between direct taxation on incomes and indirect taxation. I hope that new taxes or the relationship of old taxes with one another will be considered, not in the secrecy of the Treasury, but in public and fully discussed, so that the nation can lend its opinions to the discussions.
The way in which Corporation Tax and Capital Gains Tax were introduced was a great disservice to this country. They have created needless harm and anomalies in the economy. Dealing with one tax initiated in a hurry in 1966, I am sorry that the Chancellor of the Exchequer has so greatly increased Selective Employment Tax. I do not believe that a bad tax is made better by merely making it bigger. I agree with the right hon. Member for Sowerby (Mr. Houghton) that, had such a tax been necessary, it would have been much better to introduce a payroll tax rather than a Selective Employment Tax. Had I felt that such a tax was necessary, I should have believed it right to make it an across-the-board tax rather than have this arbitrary distinction between the service and manufacturing industries.
Dealing with the specific failures of the Bill, the biggest disincentive lies in the lack of change in the close company legislation. The limits of remuneration allowed for Corporation Tax purposes on close companies are unrealistic, as they were when Corporation Tax was introduced to pay market salaries to directors, other than whole-time service directors in close companies, means today that a substantial portion of their remuneration must bear the additional burden of Corporation Tax at 42½ per cent. In the past, it has been argued that these types of remuneration were the limits that were imposed for Profits Tax purposes. But there is no comparison between Corporation Tax and Profits Tax. If the old system of Income Tax and Profits Tax were enforced today a director's remuneration of any kind would be allowed for Schedule D; in other words, it would have relief against tax of 41¼ per cent.
However, much of the top end of a director's remuneration now gets no relief from tax when the company is subject to Corporation Tax. Furthermore, there is no allowance for part time directors. A public company can take directors on to its board to assist in various aspects, or even to give general advice, and the remuneration paid to those directors is allowed as a charge against profits. In the case of a private company usually no such allowance can be made.
In many cases when choosing managers close companies have not only to consider the best man for the job, but how many shares he or his family hold in the company. The difference between paying the man with no shares and the man with shares is that Corporation Tax has additionally to be paid on the salary of the man with shares. His salary will not be allowed for Corporation Tax purposes. What an utter distortion of the needs of industry.
It is not only in the sphere of Income Tax and Corporation Tax that these dis- tortions are so apparent. It is high time that we looked into the question of Estate Duty and the anomalies that arise therein. Each year more loopholes are blocked up. But the matter is being tackled from the wrong end. Estate duty itself should be altered rather than the plugging up of loopholes in the present system. I was glad to hear my hon. Friend the Member for Acton (Mr. Kenneth Baker)—and I congratulate him on his maiden speech—making such useful and positive suggestions about the type of tax that we should encourage in future.
One typical anomaly that has been mentioned to me recently—and I expect it has been mentioned to other hon. Members—is the case of the farmer. We are told that agriculture shows a low return on the value of land. Where gifts are made to young farmers to set them up in the farming industry, the moneys given to them, particularly in the early years, show a low return. Yet when gifts are made to young farmers by their relatives, for a period of seven years those young farmers cannot be certain that the money they have ploughed into their farms in various forms of investment will be free from duty under the Estate Duty regulations.
Surely it would be far better if there were some form of gift tax or legacy duty combined at a moderate rate so that people knew where they stood in this matter. It would be certain and the rates would not be unrealistic. Therefore, people could invest with certainty without having the threat of a sudden death hanging over them resulting in the payment of substantial death duty.
Perhaps I might take up the point raised by my right hon. Friend the Member for Kingston-upon-Thames (Mr. Boyd-Carpenter) about the provision in Clause 15 for the aggregation of a child's income with that of his parents from 1969–70 onwards. I dislike this Clause, and if I am privileged—it has been called a privilege—to serve on the Committee I shall vote against it.
Some things about the Clause are particularly obnoxious. One implication is that when a child leaves school and has to make a choice between going into industry and going on to further education, his need for further education or further vocational training may not be the paramount consideration in working out his future career. If, for example, he wanted to become a chartered accountant, he could go to a university and then take his articles, or he could go direct to a firm and take his articles and be paid a salary without going to university. If he went to university, any private income that he enjoyed would continue to be assessed for Surtax purposes with his father's income. If he went straight into a firm and took his articles and was paid a salary, his private investment income would remain his, and would not be assessed for Surtax with his parents' income. I believe that such a consideration should not arise when a child's future is being considered.
If we must have a Clause like this, it should be limited to the compulsory limit for leaving school, namely, 15. After that age it should be optional, and after that age considerations of whether investment income should rank with the income of the parents should be left aside, because such considerations could cloud and make more difficult a judgment about a child's future career.
Once a child marries, any investment income that he enjoys becomes his own and is not aggregated with that of his parents. I believe that this will be a bad piece of legislation if it is left like that. Let us suppose that a child has an income of £3,000 a year. If his parent is wealthy, and pays Surtax at the top rate, it will mean that the child's income will be worth 1s. 9d. in the £. It may be said that if he has that much money it will not matter, but it will mean that a child will not see any of his income until he is 21 unless he gets married before then. There will be a great temptation for a child to marry at a considerably earlier age than he would otherwise do, because as soon as he gets married he will be able to enjoy that income in his own right. I believe that it will be ludicrous for the law to place a child in that position. It may mean his marrying in haste and repenting at leisure. I do not believe that the Clause should be worded in that way.
I hope that the Chancellor will look again at Clause 33, particularly the last three lines, and at the matter of aggregation.