Alteration of Personal Reliefs

Orders of the Day — Finance Bill – in the House of Commons at 12:00 am on 17th July 1974.

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Photo of Mr Terence Higgins Mr Terence Higgins , Worthing 12:00 am, 17th July 1974

I beg to move Amendment No. 109, in page 8, line 35, at end insert— '(c) provided that if a married claimant proves that at any time within the year of assessment he or his wife living with him reaches the age of 65 years or upwards for the figure of £865 shall be substituted the figure £975 and it a single claimant proves that at any time within the year of assessment he reaches the age of 65 years or upwards for the figure of £625 shall he substituted the figure £680'. I should mention that in the amendment as originally printed the figure £875 appeared instead of £975. It may be appropriate at this stage—as we may not have another occasion—for me to say that, as far as I am aware, that was the only misprint in the papers before us, and that those who have been responsible for producing these papers have done so in a remarkably accurate way. That is something to which we should pay tribute. The House has been greatly inconvenienced by the printing difficulties that we have been experiencing, but I am sure that it is grateful to those responsible for producing the papers that we have before us. Indeed, one of my hon. Friends has pointed out that in some cases the Xerox style of the Finance Bill is more convenient. One can see where it has been hacked about. This Bill has been hacked about more than most. Perhaps we should take that point into account on future occasions, though it is unlikely that a future Bill will be hacked about as much as this one has been.

The amendment is similar in content to one originally advanced by my hon. Friend the Member for Braintree (Mr. Newton) on the Floor of the House. The amendment raised an important point of principle. It is on this that I seek the Chief Secretary's comments. It is true that an allowance has not been given to those over pensionable age. We are all well aware of the age exemption arrangements and of the arrangements which, before the reform of personal direct taxation introduced by my right hon. Friend the Member for Altrincham and Sale (Mr. Barber), were made with regard to some investment income for pensioners, but there has not been an allowance of the kind suggested in the amendment. I therefore hope that the Chief Secretary will comment briefly on the principle involved.

In a period of rapid inflation where the position of pensioners and others is deteriorating steadily if they are living on something over and above the national insurance pension, which has tended to rise in line with inflation, we believe that this innovation should be made.

Last night, the Chief Secretary in discussing the more controversial matters that we have been debating, said that the question was one of priorities. This group is one to which we should give high priority. I do not see how other than through the tax system we can hope to deal with the set of problems affecting those on modest incomes. The amendment which we carried yesterday with regard to the £2,000 investment income limit will do quite a bit for certain people in this group, but it will not help everyone, and this amendment is supplementary to the amendment which we carried yesterday.

The problem is one not only of priorities but of overall cost. As my right hon. Friend the Shadow Chancellor of the Exchequer has pointed out, we are anxious to ensure that we act responsibly. I will not go over the ground which was debated a short time ago in the House on that matter. I believe that we have been acting responsibly.

The Chief Secretary will give us the precise cost, but I believe that the cost of carrying this amendment would be such that we shall not wish to press it to a Division. As the hon. Gentleman well knows, we have been suffering from a sad lack of economic forecasts up to the middle of next year. The Chancellor said tonight that he now has the latest economic forecasts. As he failed to produce the additional forecasts going to the middle of next year at the time of the Budget, for reasons which I thought were spurious but which he thought were valid—the reasons certainly are not valid now—he should produce the forecasts before he makes his statement next week so that we can see the reasons on which he is making his judgment.

This is an important group to which we should give priority. This being so, we are in the very unsatisfactory position of being asked to proceed with the Finance Bill now when the Chancellor himself has indicated that he proposes to make a statement next week, yet we shall not be able to return to this amendment after his statement.

I therefore hope that the Chief Secretary will be able to give us an indication of how we can overcome that difficulty. The traditional age-old statement by Treasury Ministers that they cannot anti- cipate their right hon. Friend's Budget Statements should not be used throughout the year. Yet that is precisely the position we are getting into. We are even reaching the stage where Treasury Ministers will not anticipate their right hon. Friend's Budget Statement before we have even finished the Finance Bill on which his previous Budget judgment was based. This is a ludicrous position. I am not making a facetious point but a very serious one.

We are told that perhaps there is some scope for additional public expenditure but that is something on which we have yet to be convinced. If so, we are told, we must wait until next week to hear what the Chancellor proposes to do with his priorities rather than consider what we might do this week. As my hon. Friend the Member for St. Ives (Mr. Nott) pointed out, there seems to be a need for rethinking how Finance Bills are to be organised in the rather curious circumstances in which the House now finds itself.

I would not recommend to my hon. Friends that we should press this amendment to a Division but I would hope that we can get from the Chief Secretary a statement on a principle and in particular what else he proposes to do to help those on fixed incomes who are suffering badly from the problem of inflation.

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

I assure the hon. Member for Bristol, North-West (Mr. McLaren) that I rise to speak only in the hope that some information I can give to the House will be helpful and that I have no intention and would not wish to cut him out of any debate. I assure the hon. Member for Worthing (Mr. Higgins) that I do not complain about the perfectly understandable error. Indeed, I would like to join him in the tribute he paid to those who are producing our papers in very difficult circumstances. I am sure that they will be obliged to him for that tribute.

I doubt whether anyone in the House at the present time would be more surprised than the hon. Member for Worthing if at this moment I rose to give him the economic forecasts. I hasten to assure him I shall not do that. There will have to be a little time before that happens. I hope he was not implying, however, that one can perhaps once a year decide the path of the economy and that from time to time it will not be necessary to have more than one Budget a year. That has happened under previous Chancellors and I imagine that it will happen in the future. I do not think the hon. Gentleman would complain about it if he were not in Opposition, but I say that in the nicest possible way.

As for the cost of the amendment, with his perfectly understandable error the hon. Gentleman added £25 million to the cost in a full year. As it appeared on the Amendment Paper, the amendment would cost £25 million in a full year. As amended, the cost would now be £50 million in a full year. I therefore understand why, if the hon. Gentleman did not feel able to press his hon. Friends to support the amendment when he thought that the cost was £25 million whereas in fact it is £50 million, he should feel even less able to press it now.

The amendment is very different from the case of the normal age exemption which we have known for a long time under different Chancellors—the age exemption relief which helps pensioners at the lowest level of income above the national insurance pension. What the amendment would do, however—we debated a similar one in Committee—would be to give in addition to the age exemption an increased personal allowance, for both single and married persons, to people over the age of 65. In so doing, of course, it would give tax relief to the greatest extent to those with the highest income, which is very different from the idea of the age exemption relief. Indeed those elderly millionaires of whom we know one or two would receive most from this amendment by comparison with the age exemption amendments.

9.0 p.m.

We have done a considerable amount about age exemption relief both in the Budget and in the Bill. We have increased the level of income limits to £810 for a single person and to £1,170 for a married couple. That offers considerable relief. In addition, of course, there are the tremendous increases in national insurance pensions that were made this year and were referred to by my right hon. Friend in his Budget Statement.

I hope, therefore, that the hon. Member for Worthing will accept that in terms of priorities his proposal is not the best way of spending £50 million and, secondly, that this is not the best way of helping those over 65 at the lowest end of the income scale. Some of that £50 million would not go to those we most want to help. For those reasons, I am glad that the hon. Member is not prepared to urge his hon. Friends to support the amendment.

Photo of Mr Martin McLaren Mr Martin McLaren , Bristol North West

I should like briefly to support the principle of the amendment even though the drafting may not be perfect. Elderly people should not be liable to pay as much tax as younger people and should have rather more help than is proposed in the Bill. There are clubs which have a benevolent rule that when a member has paid 50 annual subscriptions he is entitled to free membership for the rest of his life. Although we cannot go as far as that, it is as well to recognise that many retirement pensioners have been paying income tax for 50 years and should have some measure of relief.

Many of my constituents are, like me, very keen on this proposal. I support it because I believe that older people are less flexible in their ability to change their arrangements to suit changing circumstances and are especially hard hit by inflation. For example, there are many widows who are living in houses which are too big for them and who have been hard pressed by the unprecedented rise in rates. It is harsh to tell these people that they must move from the homes which they may love and with which they may have sentimental family associations.

Elderly people need to spend more than younger people on heating and are hard hit by the sharp increases in charges for fuel and power. At one time older people used to live with their married children, but now the tendency is more towards their having independent homes, and they are more expensive. For all these reasons I believe that people who are over 65 deserve specially favourable treatment from the Treasury, and I support the amendment. Even if it is withdrawn, I hope that next year we shall be able to go a little further in this direction.

Photo of Mr Terence Higgins Mr Terence Higgins , Worthing

I accept that the innovation represented by the amendment is one we need seriously to consider and no doubt my hon. Friends will wish to give it that consideration at a later stage, but in view of what the Chief Secretary said, and given my right hon. Friend's earlier remarks, I beg to ask leave to withdraw the amendment.

Amendment, by leave, withdrawn.

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

I beg to move Amendment No. 10, in page 8, line 43, at end insert— '(4) In section 14 (additional relief for widows and others in respect of children) for the references to £130 there shall be substituted references to £180'.

Photo of Mr Oscar Murton Mr Oscar Murton , Poole

With this amendment it is convenient to take the following amendments:

No. 170, in line 43, at end insert— '(4) In section 13 (relative taking charge of unmarried person's younger brother or sister) for the reference to £100 there shall be substituted a reference to £140'.

No. 171, in line 43, at end insert— '(4) In section 12 (widower's or widow's housekeeper) and section 17 (claimant depending on services of daughter) for the references to £140 and £55 there shall be substituted references to £140'.

No. 172, in line 43, at end insert— '(4) In section 16 (dependent relative) for the references to £100 there shall be substituted references to £140 and for the reference to £145 there shall be substituted a reference to £200'.

No. 173, in line 43, at end insert— '(4) In section 18 (blind persons) for the references to £130 there shall be substituted references to £180 and for the references to £260 there shall be substituted references to £360'.

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

Amendment No. 10 proposes that the additional personal allowance should be increased by £50, from £130 to £180. The cost of the increase is estimated to be £4 million in a full year.

When we debated the allowance in Committee on the Floor of the House, together with a number of other secondary allowances, I promised to examine them all. For reasons that I shall give shortly, it was not possible to deal with the smal- ler ones, but I felt that in any case this would be by far and away the most useful.

The additional personal allowance is mainly for single-parent families. It is given to a man or woman who is entitled to the single person's allowance—such people include widows, widowers and divorced or separated people—and who has sole charge of a child living with him or her, for whom he or she receives the child tax allowance. It is also given, subject to similar conditions, to a married man whose wife is completely incapacitated for the whole of the tax year, on the grounds that the wife cannot then perform her normal duties of looking after the children.

I am sure that every hon. Member will recognise that this is an important relief, much more important than the smaller ones in the other amendments, though they are important. Those smaller ones include widower's or widow's housekeeper and child-minder allowances. To a considerable extent they have been displaced by the additional personal allowance. The Radcliffe Commission recommended the abolition of all those allowances and the daughter's service allowance.

There are other reasons. The cost of the amendments would not be great, but there are administrative problems. I know that when hon. Members hear of administrative problems they generally say "Well—", so I want to explain the serious consequences that would result if the amendments were carried. I am referring in particular to the staff consequences.

If those small amendments were carried, the main task would be to identify those who would become entitled to any increased allowance, which would involve examining the tax records of about 25 million PAYE taxpayers and picking out those affected. Once they had been identified, notices of the revised PAYE coding would have to be prepared and sent to the employee and his employer.

There is an additional difficulty in the case of an increase in the allowance for elderly people. The dependent relative allowance relates to the dependants of an elderly person as well. In some cases records will show that a taxpayer is over 65, but that is by no means invariably the case, and some means would have to be found to identify the remainder. It is estimated that the recoding necessary to give an increase to the over-65s would require about 650,000 man hours of work, the equivalent of nearly 400 extra staff. If the other secondary personal allowances were raised at the same time, the staff cost would rise to about the equivalent of over 600 extra staff. The cash cost would be £650,000 for an increase in the allowance of the elderly only, and £1 million for a general increase in secondary allowances.

It is important to tell the House what would be the consequences of the proposals. There is the question whether in existing circumstances the work could be done. The Revenue staff have already had to work about 2·3 million hours of overtime to give effect to the taxation changes already made or announced and to revise the PAYE coding to take account of the increased State pension. One pays tribute to them for that.

Quite apart from the work burden and strain that this has entailed, it has been a particularly frustrating operation since the recoding for the increase in child allowances has had to be done virtually all over again in consequence of the proposal to increase the allowances for single-parent families.

There may be many further heavy tasks ahead for staff if we wish to make further allowances to the sort of people we have in mind. There is no spare space in the programme of work into which the extra work which would arise from the proposals could be fitted. In consequence there is grave danger of staff being strained to the utmost, or possibly beyond. It would be asking a lot of the staff if they were required to undertake a third PAYE recoding for 1974–75. I hope that the House will understand these reasons. The work for the men who have to do the recoding and the cost of paying them overtime would be substantial, in relation to the cost of the Opposition amendments.

Photo of Mr Tony Newton Mr Tony Newton , Braintree

The hon. Gentleman has pre-empted the speech I hoped to make, and therefore I shall curtail my arguments if I am called later, but at the moment I intervene to ask why the work which must be involved in fulfilling the amendment which the hon. Gentleman is proposing cannot also be applied to fulfilling the amendments which we are proposing. Presumably the Inland Revenue has to go through 25 million PAYE forms to fulfil the proposal in the Government's amendment. Why cannot this work also be applied to fulfil our amendments?

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

The work involves identifying different classes of people in each case. There would be a much greater amount of work involved if the Opposition amendments were carried. I can assure the hon. Gentleman that this is the advice I am being given. I am not trying to pull any fast ones over him. I have been explaining the advice I have been given as to the consequences for staff and the administrative problems which would arise if the Opposition amendments were carried. I see that he accepts this, as I have had to accept it.

I hope that the hon. Gentleman will feel that I have gone a considerable way to fulfilling an undertaking which I gave earlier by bringing forward a not inconsiderable amendment on additional personal allowances. I have not sought to prejudge the hon. Gentleman's speech. I thought it would be helpful for the House to have this information.

Photo of Mr Terence Higgins Mr Terence Higgins , Worthing

I understand the point that the Chief Secretary is making and I hope to comment on it in a moment, but is this problem related simply to the time of year? If the changes proposed were to be made at the beginning of the next PAYE year would similar problems arise? Are we to take it that any possibility of changes in the autumn Budget would be precluded for the same reasons that the Chief Secretary is now advancing?

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

It would obviously be a different kind of problem. At the moment there have been a considerable number of recoding problems—for the increased pension, the additional personal allowance and so on. At another time there would be different problems. The situation would be different. One of the troubles with our system is that if there is one recoding because of a pension increase and another because of an increase in child allowances, whether family allowance subject to tax or the child allowance, then anything else is made much more difficult. We have to examine what creates the situation.

At the moment that is the position. I feel it right to advise the House about this because otherwise it might be voting without a full knowledge of the consequences. I hope that the House will accept my substantial amendment increasing the additional personal allowances.

9.15 p.m.

Photo of Mr Tony Newton Mr Tony Newton , Braintree

As I said a moment ago the Chief Secretary has skilfully—being a reasonable man I am forced to acknowledge it—resisted the amendments tabled in the names of myself and my hon. Friends the Members for Kingston-upon-Thames (Mr. Lamont) and Gloucestershire, South (Mr. Cope). My speech will therefore be briefer than I had originally intended because I understand the hon. Gentleman's expression of good will and would not wish to hold up the House unreasonably.

As the Chief Secretary has said, this situation reveals the profoundly unsatisfactory nature of our present tax system. I would be more disposed to accept the hon. Gentleman's apologies for this situation were it not for the fact that he represents a Government who appear to have turned their back on the tax credit scheme, which would have provided a way of bringing about a major simplification of the system, obviating many of the difficulties the hon. Gentleman now uses as arguments against helping widows, people looking after their younger brothers or sisters, elderly or infirm people being looked after by their daughters and blind persons. Those are the categories of people about whom we are talking. Although I understand the hon. Gentleman's arguments I do not think that the situation is satisfactory and it is worth While recording that fact.

We unequivocally welcome what the Chief Secretary has done in response to our pressure in Committee, by increasing the additional personal allowance in respect of children, to help the one-parent family. It would be disingenuous of me to pretend that I had waded through the whole of the Finer Report. We have had enough late-night Committee sittings to prevent me from staging my own late-night sitting to read that document.

The Chief Secretary said in Committee that he would be looking at the allowance in the light of the Finer Report. He has done so, and we are grateful. The Finer Report said that it thought there was a case for tax purposes for treating the one-parent family in the same way as the two-parent family. It went on to note that this principle was part of the tax credit system proposals. It said: We welcome this proposal"— that is, the tax credit proposal— and think that some useful immediate help could be given to one-parent families by anticipating the improvement and increasing the additional personal allowance from £130 to £180 forthwith. That, of course, is what the Chief Secretary has done.

It is important to note that the Finer Report then states: Because the additional personal allowance is of value only to the better off families (many of them will be families headed by a man) we recognise that the number of families who would benefit from such a change would be small and far less than the number who would benefit under the tax-credit proposals. But we are in no doubt as to the desirability of putting the lone parent on a footing in this way with the married man, and we think the change worth making as an interim measure and a step towards the tax-credit system. If my welcome for what the Chief Secretary has announced and what he is now seeking to put in the Bill is qualified, that is not because I regret in any way what he has done but because I would be a great deal happier, as I am sure would my right hon. and hon. Friends, if this were an interim step towards a tax credit scheme.

The situation in which we now find ourselves is that the tax credit scheme carefully worked out and properly planned by my right hon. Friends prior to February 1974 appears to have been cast into some kind of limbo. We are in an unsatisfactory situation regarding any guidance from the Government as to the kind of arrangements which they propose to put in the place of the scheme prepared by my right hon. Friends, if indeed they propose to put anything in its place.

It is right that we should regret that the step the Chief Secretary is proposing, which we support, should be a measure standing on its own and not an interim measure before the introduction of a scheme to provide a real step forward in the long term to solve the problems about which we are all concerned.

I shall throw away the rest of the speech that I intended to make. I understand from what the Chief Secretary has said that it would be unfair, if we need to worry very much about fairness in this context, to the Inland Revenue to inflict on it the grave burden that he has described. Some of us may feel that the Inland Revenue puts quite enough burdens on us and that it might well be given a few in return. However, we understand the Chief Secretary's argument. No doubt it applies particularly to the dependent relative allowance which is dealt with in what is by far and away the most expensive of my amendments. It can be presumed that it would have affected by far the largest number of taxpayers.

I ask the Chief Secretary, in view of his generally conciliatory frame of mind and the reasonable way in which he has sought to demolish the arguments I have put forward, to consider the possibility of taking action on Amendment No. 173, which would increase substantially the personal allowance which is available to registered blind persons. It would be very cheap in terms of the kind of sums we have been discussing during the past two days.

I calculate from answers given to me by the Financial Secretary some weeks ago that that could not cost significantly more than £250,000. I believe that the registered blind, like the disabled who were discussed in another context yesterday, are in a category that most of us would wish to see receive special attention. Certainly that is the position I take.

Before agreeing not to pursue Amendments Nos. 170, 171, 172 and 173, I ask the Chief Secretary whether he can at least accept Amendment No. 173. It is a relatively limited amendment. It would cost very little money and would apply to a group of persons who perhaps have a special claim on the sympathy of all of us in the House.

Photo of Mr Terence Higgins Mr Terence Higgins , Worthing

I am surprised that the hon. Member for West Stirlingshire (Mr. Baxter) should say "Put the Question". This is an important matter concerning many people for whom I should have thought the House as a whole would have considerable sympathy. The fact is—

Photo of Mr Terence Higgins Mr Terence Higgins , Worthing

—that all of us without exception have special sympathy for them. The Chief Secretary has expressed sympathy for them and has recognised that they represent a group which deserves special attention.

It is unfortunate that the present system does not allow us to go ahead with the kind of measure which the Chancellor might have put in his Budget, in which case the problem would not have arisen. That is one of the many reasons why my hon. Friends and I believe that we should move towards the tax credit scheme. In the previous administration the legislation was ready for drafting and the scheme could have been included in the Finance Bill had a Conservative Government been returned to power. That scheme would have effected an immense improvement in the administrative arrangements. It would have enabled us to deal compassionately and effectively with the group of people covered by the amendment. The change of policy on a matter on which the previous administration hoped to reach all-party agreement is regrettable.

Although the House is always reluctant to accept administrative impossibility as an answer, I understand what the Chief Secretary said. I also understand that my hon. Friends, with one exception, do not wish to press the amendments. The cost of the allowance for the blind is very small. It is possible that the immense sifting operation referred to by the Chief Secretary would not be necessary for this group of persons. I do not recall the technicalities of what the Chief Secretary said, but unless it is necessary to sift just as many people to get at this group as to get at all the groups it may be that the administrative difficulties of granting this relief for the blind are not so great.

In earlier debates in Committee the Chief Secretary did not put forward these administrative difficulties. He made no reference to them whatever. Had we known about them earlier it might have been possible to have included the sifting operation in the other operations. Perhaps we can be given an explanation of that.

The House is anxious to make progress. I am sorry that it is not possible to press these matters to a conclusion, but I am sure that my hon. Friend is right to raise them and in particular to stress the importance we place on changing the system to a more equitable one based on the tax credit scheme.

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

I am sorry if I ruined the speech of the hon. Member for Braintree (Mr. Newton). I did not mean to do so, but I thought the House would find it helpful to know the administrative problems.

The hon. Member for Worthing (Mr. Higgins) asked why I did not tell the House previously about the administrative problems. I could not do so because I was not aware of them. I gave an undertaking in Committee to look at the secondary allowances and when I did so I found these difficult administrative problems.

I agree that the proposed relief for the registered blind would not cost a great deal, but I regret to say that there are similar administrative problems. I am advised that it would be necessary to review all the records. One could not expect a registered blind person to make his repayment claim. Recoding would have to be done and records would have to be checked. I should have liked to do this, but there might perhaps be a better opportunity to do it in 1975–76 when the recodings can all be done together.

I will try not to be tempted to widen the debate. Both hon. Gentlemen know my reasons for disagreeing with them about the scheme to which they referred—

Photo of Mr Jeffrey Archer Mr Jeffrey Archer , Louth Borough

When the Chief Secretary talks about 1975–76, will he remember that the blind have been at the back of the queue in respect of handicapped people? Therefore, should not their situation be considered as quickly as possible?

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

I promise the hon. Gentleman that I shall do that next year and in any other years when the Labour Government present Finance Bills. I hope that the amendment will be acceptable to the House.

Amendment agreed to.

9.30 p.m.

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

I beg to move Amendment No. 174 in page 9, line 10, leave out subsection (6).

The amendment tidies up Clause 13 of the Bill by leaving out subsection (6), which is no longer necessary. The subsection provides that PAYE adjustments to take account of changes in personal allowances need not be made before 20th July. The subsection was included in the Bill to ensure that the Revenue would not be under a legal obligation to issue new codings before 20th July if the Bill had received the Royal Assent before that date. It is now clear that the Royal Assent cannot be given before that date and subsection (6) thereby becomes redundant.

Amendment agreed to.