Tempory Disregard of Increase in Certain Pensions and Allowances

Clause 69 – in the House of Commons at 12:00 am on 12 July 1972.

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Photo of Mrs Sally Oppenheim Mrs Sally Oppenheim , Gloucester 12:00, 12 July 1972

I beg to move, Amendment No. 144, in page 49, line 37, after '1972–73', insert 'and to each annual increase for five successive years'.

Photo of Miss Betty Harvie Anderson Miss Betty Harvie Anderson , Renfrewshire East

With this Amendment it would be convenient for the House to discuss Amendment No. 145, in line 38, leave out 'charged for that year'.

No. 146, in line 38, leave out 'for that year' and insert 'during the subsequent twelve months only'. and No. 147, in line 40, at end insert 'and such disregard, from April 1973 onwards, shall apply only to single persons with an annual income of £900 or less, and to married couples with an annual income of £1,300 or less'.

Photo of Mrs Sally Oppenheim Mrs Sally Oppenheim , Gloucester

In submitting these Amendments I am forcibly reminded of the words of Lord Clive when answering a Parliamentary Committee about his acquisition of today's equivalent of £5 million during his governorship of India, when he said, "By God, Mr. Chairman, at this moment I stand astounded at my own moderation."

Those are precisely my sentiments in moving the Amendment, which, together with the other Amendments, by a strange coincidence would cost the Revenue the same amount of money on an annual basis for the next five years.

The purpose of this complementary group of Amendments is to extend the tax relief that the Chancellor has given to the pension increase for this financial year to the pension increase in subsequent years on a non-cumulative basis to pensioners within certain income limits over the next five years. I hope that the modesty of the Amendments will commend them to my right hon. Friend. Indeed, I think that we have been far too modest. I would dearly have loved to have asked for the whole £175 million-worth and to have exempted all the National Insurance, widows' and war widows' pensions from tax. But as we have combined realism with modesty, I hope that my right hon. Friend will take note of that, too.

1.30 a.m.

It would be less than fair to my right hon. Friend, however, not to acknowledge at the outset that the problem of the taxation of pensions has intensified as a result of two measures of which he and his right hon. Friend the Secretary of State for Social Services can be justly proud, the introduction of the annual review of pensions and the measures in Clause 69 of this Bill. I know that the latter measures were introduced partly for administrative expediency, but I refuse to believe that it was not done partly also as a kind and imaginative gesture. Both measures have been widely welcomed on both sides of the House, and even my Labour opponent in Gloucester has been moved to pay a tribute in a roundabout way to what has been done by saying that it is a tragedy that the Tories have had to show Labour the way in introducing the annual review of pensions, and of course he was quite right. No Labour Government have ever done such a thing. They have always significantly raised taxes rather than diminish them.

I know also that my hon. Friend the Member for Norfolk, North (Mr. Ralph Howell) presented one aspect of this problem in most eloquent fashion in the Standing Committee, as did my hon. Friend the Member for Worcestershire, South (Sir G. Nabarro) by his Amendment to Clause 63. While I cannot hope to match their eloquence, I make no apology to the House even at this late hour for raising another aspect of the problem.

It is impossible to overstate the bitterness and sense of grievance and injustice which is felt by those pensioners who have to pay tax on small pension incomes—People who have paid tax on every penny they earned throughout their working lives and who, thanks to a Labour Chancellor, have since 1965 been paying tax on their national insurance contributions as well.

Quite the hardest hit is the war widow who has neither age exemption nor age relief. Almost as hard hit are those pensioners who, in addition to their national insurance pension, have a small income either from an occupational pension scheme or from earnings or savings. These are people who have managed to save a little at a time when this could be achieved only by substantial self-denial, people who are prepared to go on working after their retirement age in order to provide themselves with a few comforts for their old age without having to ask for supplementary benefit, women who have sacrificed their husbands in the defence of this country—all of them penalised by a form of double taxation and the confiscation of long-term benefits awarded for a specific purpose. Many of them are no better off—some are even worse off—than those who have done neither. I emphasise that I intend no criticism of those who have not been able to save. I sympathise with them. But I have the deepest admiration for those who have.

Again, it is difficult to criticise my right hon. Friend on this score, because he has done so much for many millions of pensioners this year by raising the tax threshold. I hope that the House will be as grateful as all pensioners are for that measure.

There is a serious problem here. Although the proposals in Clause 69 are made with kind intent, I wonder whether their effect will turn out to be cruel when next April comes. At the beginning of the second half of the pension year, when the purchasing power of the pension is beginning to decline towards its lowest ebb for that year, suddenly, millions of pensioners will be assessed for tax on this autumn's pension increase, at a time when they can least afford it. It may be as little as 50p, but I remind my right hon. Friend that 50p can be the week's electricity bill for an elderly couple.

Here are two case histories from my own constituency files which illustrate the iniquitous nature of the present tax system on small pension incomes. They show how people will be affected in 1973 if these Amendments are not accepted.

Mrs. X is a war widow, under the age of 60. Her husband was killed aged 23, one day before his promotion would have reached him in the post, a promotion which would have left her with a far more comfortable pension. She has struggled to bring up their child on a small pension income and some part-time earnings. I need not tell the House what a struggle that has been. Her pension is £8·05. Her earnings are £3·38. On this meagre income in the year 1971–72 she was paying tax at the rate of £1 a week. Since April, thanks to the Budget measures, she has been paying no tax at all. Apparently, she is one of those millionaires who, so the hon. Member for Oldham, West (Mr. Meacher) is always telling us, are the only people to have been helped by the Budget this year.

Even when she gets her pension increase this autumn she will continue to be exempt from tax so that her real income this autumn will be £12·43. But assuming an increase at the same rate the following autumn her real income will then be £12·83, only 40p higher than it was a year before, a mere fraction of her actual pension increase, and moreover a sum of money that could not keep pace with even a modest rate of inflation.

Then there is Mr. Y, a married pensioner who earns £12·68 as a part-time security guard. He has a 23p railway pension. His national insurance pension for himself and his wife is £8·80 after earnings rule deductions, so his real income in 1971–72 was £18·36. Once again since April his tax has been reduced to £1·91 and his real income even after he has paid tax at the reduced rate after his pension increase this autumn will be £21. But assuming a pension increase at the same rate in 1973 he will be paying tax again at the rate of £2·76 a week. So his real income will be only £21·35, 35p more than it was a year earlier, once again a mere fraction of his actual pension increase.

I have an enormous file on pensioners, war widows and others who, if the Amendments are not accepted, will be left with a derisory fragment of their pension increase, penalised for working or saving or both. And certainly if they had done neither they would probably have been eligible for some benefit or a rent rebate or a rate rebate. An annual review of pensions will certainly not be of much help to them. By any yardstick this is a grossly unfair situation. I would like to read a few words from a constituent's letter. She is a single lady pensioner. She says: I wanted to get a home together for myself which was not possible until I was pensionable. Having achieved that"— after a great deal of hard work— I wanted to get a little security for the time when I was no longer able to work. With the help of yourself and the Chancellor"— God Bless him— I have been relieved of tax from my pension. I am now able to secure a little of my earnings for my future need"— so that she will not have to ask for supplementary benefit. Is my hon. Friend the Chief Secretary going to write to this lady and tell her that in 1973 she will probably be paying tax again. Surely the least these people deserve is to be able to enjoy the fruits of their labours and their thrift. I believe that they are the salt of the earth and that they deserve recognition and consideration for the service they have given the community during the years.

My hon. Friend will no doubt argue that they are better off than national insurance pensioners who have nothing but their pension. Of course they are and why should they not be? Who knows how they have worked to put themselves into this position? Surely it is against the principles of a Conservative Government to level down by means of taxation. Certainly Mrs. X the war widow, after her second pension increase in autumn 1973, will be margin ally worse off even than a single national insurance pensioner receiving the maximum discretionary supplementary benefits which will have risen twice since then and which will be tax-free.

Unless my right hon. Friend the Chancellor is able to raise the tax threshold in every Budget or unless the Amendments are accepted the problem will not be solved until the phasing in of the tax credit system. It is in recognition of this very welcome reform that we have put a five-year limit on the Amendments. I am already very familiar with all the Treasury arguments against them. The argument that income is income and therefore must be taxed has become rather muted since it has been pointed out that this does not apply to short-term benefits. Then there are the arguments about administrative difficulties. Surely the vast machinery of the Treasury is the servant of justice, not the slave of the system, and justice can never be a convenience. It should nevertheless be done.

My right hon. Friend, to his very great credit, has introduced a radical and far-reaching programme of tax reform. The Government's introduction of the annual review of pensions is magnificent. But I beg my right hon. Friend, if he will forgive the analogy, not to be like the cow which gives a lovely pail of milk and then kicks it over. I beg him to allow the pail to remain standing by accepting the Amendments, which, for a few million £s a year, will not only restore justice to the pensioners I have described but will restore their faith that Treasury officials and Ministers do regard them not merely as code numbers but as human beings.

Photo of Mr Tam Dalyell Mr Tam Dalyell , West Lothian

I thought at the beginning of the speech of the hon. Member for Gloucester (Mrs. Sally Oppenheim) that here was a potential recruit to next year's silent majority on the Finance Bill. but having looked at the faces of Ministers on the Treasury Bench I do not think there will be many changes in that direction. I found it a disgraceful speech. I wondered whether the hon. Lady had read the Official Report of any of the debates we had in Committee on the matter, when I and others raised it in a very different fashion with regard to Mrs. Denton, of Aberdeen, and others who have written on behalf of the Scottish war widows. The Minister of State has taken great trouble over that correspondence——

Photo of Mrs Sally Oppenheim Mrs Sally Oppenheim , Gloucester

I read the debate, and I was as impressed by the hon. Gentleman's speech as he was by mine.

Mr. Datyell:

I felt that the hon. Lady's speech was not only disgraceful but rather cruel, because such a speech raises hopes where we all know very little can be done, because the cases differ greatly.

At this time of night I will not say more than that I thought the hon. Lady's speech rather revolting.

Photo of Nicholas Winterton Nicholas Winterton , Macclesfield

I strongly support the excellent case presented by my hon. Friend the Member for Gloucester (Mrs. Sally Oppenheim). She presented it in such a magnificent way that I am left with very little to say.

Many Amendments have been refused by my hon. Friends on the Treasury Bench because of the extra work that might be created or because of administrative problems. But the Amendments before us, which I fully support, reduce the work that would be undertaken by the Treasury. They would save substantial sums which could be put to better use, and reduce the large number of overtime hours worked by those within the Treasury.

When people have saved through their working lives to provide a satisfactory income for themselves, their family and their dependants once they have reached retirement age, that income should be free of tax, but this is a very difficult objective to achieve. Therefore, the Amendments to which my hon. Friend has spoken are very modest. If the Chancellor, my hon. Friends on the Front Bench and the officials have seen the problems resulting from these Amendments they should let us know what these problems are. If my right hon. Friend will not accept these Amendments on this occasion I hope he will give serious consideration to them in future Finance Bills.

My hon. Friend has presented an excellent case, she has covered the ground thoroughly and I hope that those pensioners who will be penalised by the present situation will take courage from what some hon. Members are prepared to say in the House on their behalf.

1.45 a.m.

Photo of Mr Joel Barnett Mr Joel Barnett , Heywood and Royton

I am compelled to say a few words, even at this late hour. We on this side of the House, as will be well known from Amendments we have moved, throughout the Committee stage have wanted to help precisely the people the hon. Member for Gloucester (Mrs. Sally Oppenheim) was speaking about, but we cannot take the way in which she delivered her speech and some of the things she said.

I speak for myself, and I hope she will forgive me when I say that I thought her speech was a lot of humbug. I had not intended to speak on the Amendment, but hearing the hon. Lady speaking from the benches opposite as though her heart were bleeding and with appropriate facial expressions about the poor old widows I find it hard to take——

Photo of Mrs Sally Oppenheim Mrs Sally Oppenheim , Gloucester

Why will not the hon. Gentleman give way?

Photo of Mr Joel Barnett Mr Joel Barnett , Heywood and Royton

Because the hon. Lady has come into the debate and has spoken at 1.30 a.m. with very little, indeed nothing, to say except something which I find distasteful. I intend to say so and I have said so. If she does not like it she can speak again and say she does not like what I have said. I do not like what she has said. Those are my views and, I think, the views of my hon. Friends. It is important to put them on the record and I am delighted to do so.

Mr. Patrick Jenkins:

That was one of the most extraordinary attacks I have ever heard in the House. My hon. Friend the Financial Secretary suggests that the hon. Member for Heywood and Royton (Mr. Joel Barnett) must be getting tired, but I think the truth of the matter is less admirable than that. It sticks in the gullet of the Opposition when they hear anybody on this side of the House seeking to defend the interests of those with low incomes. I cannot see why the Labour Party should claim a monopoly in compassion as it always does. But my hon. Friend the Member for Gloucester (Mrs. Sally Oppenheim) is perfectly capable of defending herself. A propos of my hon. Friend's analogy, my right hon. Friend has no intention yet of kicking the bucket, whether full of milk or otherwise.

I listened with care to what my hon. Friends the Members for Gloucester and Macclesfield (Mr. Winterton) said on the subject of the Amendment, but I do not think it will altogether surprise them or the House if I say that I cannot advise the House to accept it.

The Amendment is hung on Clause 69, which was introduced following an announcement by my right hon. Friend in his Budget statement, after he had announced the pension increase this year and the social security uprating—and I very much welcome what my hon. Friend said about the annual uprating which is a great stride forward in our social security system. My right hon. Friend said: Because the Inland Revenue is so heavily committed to work in preparation for the unification of personal taxation, and it cannot this year undertake any extra PAYE recoding work, the increase in national insurance pensions and war widow's pensions payable in 1972–73—and I had better stress only the increase, and only in 1972–73—will be tax-free." [Official Report, 21st March, 1972; Vol. 833, c. 1356.] In the debate on the earlier Amendment moved by my hon. Friend the Member for Pudsey (Mr. Hiley) I referred to the unification of income tax and surtax. My right hon. Friend has explained, as I have, that this involves, this year, the complete recoding of every PAYE taxpayer in the country to prepare for the beginning of unification. That meant that we had to make a number of administrative short cuts in order to allow sufficient time and space for the Inland Revenue staffs in the tax offices to be able to tackle this mammoth task. One suggestion put to us by the Inland Revenue was that to avoid the recoding of pensioners as a result of the uprating of the national insurance pension and the war widows' pension we should allow, this year, no recoding to take place, which has the inevitable consequence that the increase this year—that is, up to 5th April, 1973—would be outside the charge to tax.

Do not let anybody get the idea that that was an easy decision, or that in terms of equity it makes any sense at all. It is simply an administrative short cut. It is important to recognise that fact.

I want to make three points in that connection. Many people of pensionable age who have not retired—my hon. Friend referred to some—and who are therefore not drawing the national insurance pension and therefore derive no benefit from this Clause, could justly be aggrieved if people of the same age who had retired and had pensions,—and in many ways exactly similar incomes—were allowed tax relief. We have to face that this year, but we could not regard it as a permanent feature of the system.

Secondly, the effect of giving this tax relief this year is to give relief to pensioners who have enough income to pay tax, without being able to do anything for the people on much lower incomes who are below the tax threshold. That was certainly not the objective of the exemption, but it happens to be an unavoidable consequence. When I say that this year the age exemption limit for a married couple is £929 while the national insurance pension for a married couple is £504 one sees that the pensioner must have considerably more than £8 a week in income from pay and pension before he can benefit from this temporary concession.

Thirdly, the general principle that we apply is that if resources are available to improve the lot of the pensioners—I agree with much of what my hon. Friend said about the desirability of doing this—it is not necessarily the most effective way to do it through the tax system, because that can, by definition, benefit only those who are within the tax net. Instead, it is better to use the resources to uprate benefits, because that helps all—within the tax net or not.

All those three points can be defended for one year as a necessary administrative short cut, to allow the major tax reforms—which have been widely welcomed by hon. Members on both sides of the House—to take effect, but I cannot believe that any one of the features to which I have referred would be welcomed as a permanent feature, or even for a period of five years. I take the point that my hon. Friend made about the tax credit scheme in our taxation system. If we felt able to go beyond the increases in the age exemption limits, if we wanted to help those elderly taxpayers, it would be much better to use one of the traditional ways, either by raising the tax exemption limits further—although they have been increased by £104 this year—or alternatively by using the resources to increase the annual uprating of pensions. It simply would not make sense in terms of equity to take this particular course.

The Opposition put down an even odder Amendment, which I believe we are also discussing. Under that Amendment, any future upratings would be taxable but this year's slice of increase would remain tax-free in perpetuity. That would be an even more undesirable way of dealing with the matter.

Perhaps I have said enough to indicate that this could not become a permanent or even, I think, a five-year feature of our tax system, but perhaps I may mention one other matter. I do so with hesitation but it is a point which it is right for me to make from the Treasury Bench. The Labour Party, as we know from the Budget speech of the right hon. Member for Birmingham, Stechford (Mr. Roy Jenkins) in 1969, hankered after some form of unification of income tax and surtax. Goodness knows, it had been pressed upon him often enough from his side of the House by the hon. Member for Heywood and Royton (Mr. Joel Barnett) and the hon. Member for Ashton-under-Lyne (Mr. Sheldon). The right hon. Gentleman never felt able to do it. He always pleaded that the administrative constraints made it impossible.

If one is to overcome the administrative constraints—and for this my right hon. Friend deserves enormous credit, as does the Inland Revenue—one has to be prepared to make administrative shortcuts. One has to be prepared, if necessary, to incur the unpopularity or do things which one might not otherwise have done because they offend principles of equity or of the tax system.

If one is to do this, if a Chancellor is to be prepared to accept a measure like Clause 69 of the Bill, which one would not have introduced on grounds of equity—the temporary exemption for half a year of a pension increase—it makes it extremely difficult if it is then seized upon by hon. Members, on either side of the House, who say "Now that the Government have done it for one year, they can make it permanent", as the Opposition would have wanted, "or they can continue it for five years." What happens next time is that when a Chancellor who wants to undertake a major reform is told that it can be done only by making a shortcut of the sort we are discussing he says that he cannot risk doing it because, however much one says in the Budget speech and I had better stress only the increase, and only in 1972–73".—[Official Report, 21st March, 1972; Vol. 833, c. 1356.] there will be people who, with the best will in the world and from the highest of motives, will say "Now you have done it once, you can do it again and again".

If a Chancellor is to resist that argument, it must mean that the House in its turn must recognise the reality of the situation and not seek to press the perpetuation of what is intended merely to be a temporary, inevitable, administrative shortcut—inevitable if we are to carry out the major reform.

I hope I have explained to my hon. Friend that we have very great sympathy for the needs of the pensioners, particularly the categories of working and saving pensioners to whom she referred, that we believe we are dealing with that in the most effective way by the annual upratings of pensions on the basis described by my hon. Friend, by substantial increases in the age exemption and, therefore, the tax threshold of pensions and that we could not accept, even for five years, that Clause 69 should be perpetuated in the way suggested in her Amendment.

I recognise my hon. Friend's motives in putting forward this point. I ask her to recognise the Government's in my advising the House that we cannot accept her Amendment.

Amendment negatived.