Orders of the Day — Finance Bill

Part of the debate – in the House of Commons at 12:00 am on 2nd April 1973.

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Photo of Mr Peter Rees Mr Peter Rees , Dover 12:00 am, 2nd April 1973

I do not have that figure, and in any case I shall make my speech in my own way.

Let us now consider a married man with £1,000 a year and having two children. In 1951, assuming that income to be entirely investment income, he would be paying £251 in tax—in other words, a quarter of his income. If that income were entirely earned the tax figure would have been £165. In 1970–71, after six years of beneficient Socialist administration, the man on £1,000, which was just slightly less than average earnings, would have been paying £138 if his income were entirely investment income, or, if it were entirely earned, £51. In 1973–74, with this long overdue measure of justice, in neither case will any tax be paid at all.

Let us move from the domestic front and make comparisons with our main competitors overseas and consider the average rate of tax current for someone with £1,000 a year of earned income. In the United States, Germany, France and the United Kingdom no tax would be payable, so at least we find parity there. A man with earned income of £1,500 a year in the United States would pay nil, in Germany 3·4 per cent., in France nil and in the United Kingdom 8·7 per cent. Fgures for an earned income of £2,500 are: United States 4·4 per cent.; Germany 8·5 per cent.; France 3 per cent., and the United Kingdom 17·2 per cent.

Let us turn now to maximum marginal rates of tax on earned income. In the United Kingdom it is 75·4 per cent., and that figure is reached at £20,870; in the United States 50 per cent.—25 per cent. less—reached at £19,800; France, and I take the least favourable figure—because there are two types of earned income— 60 per cent., and that is not reached until the taxpayer reaches £23,000. In Germany it is only 59·9 per cent., and that is reached at £31,900.

Against figures of that kind the stark truth is that by any rational comparison there is a continuing need for reduction in all levels of income tax, and such a reduction might make a dramatic improvement in both our working and our investment habits. It is perhaps too late to eliminate a tendency to tax avoidance, about which the hon. Member for Heywood and Royton in his professional capacity knows so much at first hand. It is the penalty we pay for having such penal rates of taxation for far too long.

Perhaps the House will forgive me if, after that rather long prelude, I turn to the details of the Bill itself. I congratulate my right hon. Friend that in connection with the land hoarding tax he has resisted a temptation to introduce something on the lines of betterment levy which had such a disastrous impact on land prices and, indeed, on the availability of land, and I am sure that the various aspects of his proposal are being very carefully considered. I have two practical suggestions to make. The first is that taxpayers should be allowed to shed planning consent so that they will not be penalised if, in order to protect such amenities as gardens, they have bought land with planning consent. There will also have to be proper account taken of applications by third parties in connection with land which they do not own. As I say, I am sure that we will be told that all these many aspects are being taken into consideration.

Certain of my hon. Friends have dealt with far more authority than I can with corporation tax. My only comment is that it is extremely irksome for companies not to know what the going rate of corporation tax will be. It may be objected that companies have to make profits whether or not they know the rate of tax. That may be true of profits, but it is not true of disposals of the capital assets. Corporation tax on chargeable gains is an important factor which may well predispose businessmen not to sell capital assets. I hope that my right hon. Friend may be able to indicate at what rate corporation tax on chargeable gains may be charged.

I welcome the extended share option scheme, but it is not now appropriate to go into the details. It is a modest measure but it is crucial, and I hope that the two sides can find common ground here in an attempt to establish some kind of identity of interest between employees and capital and management. I cannot pretend—I do not imagine that my right hon. Friend would—that the extended share option scheme will make a dramatic impact, but it is a first modest step in the right direction. I welcome it on that basis.

As regards the tax on the accumulated income of discretionary or accumulated settlements, the points to be made here are rather refined ones and are perhaps better made in Committee. I appreciate fully the underlying principles, but there are at least two points that I hope my hon. Friend will be able to deal with. First, trustees are, as a result of the measure, to be put in a less favourable position than individuals because they will not have the £2,000 threshold. I know that the simple answer is that if they are given a £2,000 threshold there will be a proliferation of settlements. However, I throw this out as something on which I hope my hon. Friend can give some comfort.

Again, there is the case of trusts in favour of children, whether they are given vested or contingent interests. It is unfair that they should be deprived of the £2,000 threshold. It may be that my right hon. Friend can devise a means whereby, when they acquire a vested interest in the trust fund, when the income is finally paid to them on their coming of age some relief may be given to them.

As to estate duty, I welcome this very small but long overdue measure of relief in relation to the date of sale of securities. Too many of us—certainly on this side, and perhaps opposite—have come across cases of whole estates being wiped out because of the utter practical impossibility of realising the assets sufficiently soon after death. I recall one case where it was impossible to obtain probate in Canada, and some Canadian shares comprised in an English estate dropped to virtually nothing before they could be realised. In a sensitive market it is obvious that there must be a measure such as this.

On the question of grouping or the denial of tax relief to groups of companies, my hon. Friend the Chief Secretary was a little less than fair to those who have embarked on this kind of venture. It was not a question of the Revenue losing tax or of the total avoidance of tax. It was merely a question of anticipating the capital allowances which would be theirs in any event. I suggest to my hon. Friend that there was a very good case for doing that in the past few years because it encouraged investment.

I do not say that I am against the measure, but it is only nibbling at tax avoidance. I hope that here I strike a sympathetic echo from the hon. Member for Heywood and Royton. I hope very much—indeed, there was an indication of this in the speech of my hon. Friend the Chief Secretary—that the Treasury or Somerset House will look comprehensively at tax avoidance and that we will not merely have specific problems dealt with in a piecemeal fashion. The time has come when there should be a comprehensive look at the whole field.

I, too, am against a diversion of effort against tax avoidance, but too often the Revenue has closed one loophole only to impose hardship over a whole range of perfectly bona fide commercial transactions. The measures in this field have become too complex and too harsh. There should now be a comprehensive review. I am therefore a little discouraged that there should be this piecemeal approach this year.

As regards value added tax. I make no point on the general impact, but I revert once more to the case of charities. I well recognise that my right hon. Friend has done a considerable amount for charities, and it is right that this should be acknowledged. There is one area in which he has possibly been a little insensitive; that is the case of charities that provide services—in other words, charities that provide care and homes for children, say—for local authorities. There are many such institutions. I understand that they are still concerned about their position and are uncertain about exactly whether they should register. I hope that this can be cleared up briefly.

Those are all points of detail, but when one is considering a Finance Bill of this nature one is bound to consider points of detail. Some of the details are welcome—indeed, most of them are—to me. There are one or two unwelcome points which I do not hesitate to draw my hon. hon. Friend's attention.

The details of the Finance Bill and of the whole Budget have been overshadowed by the borrowing requirement. This was the point made by the hon. Member for Loughborough, whom perhaps I have driven from the Chamber by my over-copious production of statistics. In any event, the technical details of the Finance Bill are overshadowed by the borrowing requirement and the methods of financing it.

I do not know whether I can say that we are all monetarists now. I certainly do not want to get involved in esoteric arguments about the reliability of Ml as against M3. The Chancellor is faced with a borrowing requirement of £4,400 million. I want to state very briefly why I think we should not be over-pessimistic about this.

First, we have had no detailed expose from hon. Members opposite as to how much or what quantities of gilts may be sold to the non-bank sector. In 1971, which may have been a particularly favourable year, it amounted to £3,000 million. I have heard from experts who are not at all optimistic about the present financial position that the Government may confidently expect to sell as much as £2,500 million. If so, we are talking about a deficit of £1,900 million.

Against that, I think that most people would accept—this is fair, and certainly this is the proposition advanced by the Economic Ministers of the Common Market when they met at Luxembourg—that a country can stand, without adding to its inflationary pressures, an increase in the money supply equivalent to the increase in its gross domestic product plus the tolerable percentage of inflation.

If we are to achieve an increase in the gross national product of 5 per cent. and if we can stand, say, an inflation at the rate of 2 per cent.—this is a little less than we had under the previous Conservative administration—then, depending on whether one takes Ml or M3 as the correct figure, the Government can tolerate an increase in the money supply of between £700 million and double that figure. If that is added to the figure of gilts that may be sold to the non-bank sector the deficit assumes manageable proportions.

Finally, I say, although this may not commend itself to the Chancellor or even to the hon. Member opposite, who is not burdened with these responsibilities, that we can take a certain part of the strain on our currency reserves. After all, this is what reserves are for. I hope that my right hon. Friend will take a flexible view of this problem. This I throw out only en passant, because it is bound to be a matter of speculation. I do not think that in the light of these figures we should talk ourselves into some kind of financial crisis that I do not believe exists at present.

Where the economic high priests read such contradictory messages from the financial entrails, my right hon. Friend's task is particularly difficult. He has introduced a neutral Budget. That is, indeed, a course of prudence which I commend. I hope that no sentimental attachment to the spring rite in which we are participating at the moment will deter him from making adjustments in the late summer or in the autumn as the situation demands.

On that modest and qualified basis, I end by saying only that I shall support the Bill without any hesitation in the Lobby tonight.