Taxation and Benefits

Oral Answers to Questions — National Finance – in the House of Commons at 12:00 am on 24th March 1977.

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Photo of Mr George Cunningham Mr George Cunningham , Islington South and Finsbury 12:00 am, 24th March 1977

asked the Chancellor of the Exchequer if he will set in hand an examination of the proposal on tax and short-term social security benefit set out in the article by the hon. Member for Islington, South and Finsbury in The Guardian of 8th March.

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

I am having this scheme examined and I will write to my hon. Friend shortly.

Photo of Mr George Cunningham Mr George Cunningham , Islington South and Finsbury

Does the Chief Secretary agree that we would not be justified in taxing short-term benefits because it would probably cost about £50 million a year to administer that change, but will he also agree that we cannot go on with a system that pays very large tax rebates to some people becoming unemployed but nothing at all to others, dependent entirely upon the moment at which they become unemployed? Will Treasury Ministers try to draft the Ways and Means Resolutions on the Budget in such a way that we stand a chance of having a good going over of this idea this year with a view to possible implementation next year?

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

As my hon. Friend knows, we always draft the Ways and Means Resolutions in as helpful a way as possible. I take my hon. Friend's point. There are serious administrative problems in this field, although in principle two incomes, one in work and one out of work, of equal amounts should be taxed equally. There is nothing wrong in principle with the taxing of short-term benefits. It is right, in my view, that they should be taxed. However, on the other hand, there are very serious administrative problems, to which my hon. Friend referred in his article, and I promise him that we shall be considering them.

Photo of Mr Geoffrey Howe Mr Geoffrey Howe , East Surrey

Is the Chief Secretary aware that there may be some room for doubt as to quite whom he is intending to help in the drafting of the Ways and Means Resolutions, but that this is a matter on which there is equal concern on both sides of the House? Will he confirm the figure quoted by his hon. Friend that the total sums now paid out in tax refunds to people in receipt of short-term benefits amount to some £400 million? Will he also consider very seriously the suggestion put forward by his hon. Friend that, at least while people are drawing benefit and are not paying tax, they should be included in the tax code system and, therefore, not entitled to refunds for those relevant weeks?

Will the Chief Secretary accept our assurance that any move to follow the suggestions made by his hon. Friend to bring back some justice in this area would be much supported by the Opposition?

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

I very much support bringing justice into this area and many others. I want to examine very carefully what was said by my hon. Friend the Member for Islington, South and Finsbury (Mr. Cunningham). There are very great administrative problems in dealing with this question through the PAYE system. We are talking about the equivalent of about 10 million additional jobs, because about half of short-term benefits are subject to claims and are for up to about two weeks, on average. That means an enormous administrative task. I assure the right hon. and learned Gentleman that these are very serious administrative problems and that we are looking at them.

Photo of Mr Geoffrey Howe Mr Geoffrey Howe , East Surrey

Does not the right hon. Gentleman understand? Of course, one can say that it is an administrative task to repay tax or to tax those who are drawing benefits of this kind, but is it not the case that every one of these people involves an administrative operation simply to secure the payment of a refund already? Would it not make sense, therefore, to take the same administration to see that they get no refund? What is the difference?

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

The difference is that the reasons for refunds are much more complex than the right hon. and learned Gentleman suggests. There are many other reasons for refunds. If the matter were as simple as that, I am sure that the Government of which he was a member would have looked into it and dealt with it. It is a much more complex matter than he cares to suggest.