Clause 15

Orders of the Day — Finance Bill – in the House of Commons at 12:00 am on 10th May 1977.

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CHARGE FOR INCOME TAX FOR 1977–78

4.2 p.m.

Photo of Dr Oonagh McDonald Dr Oonagh McDonald , Thurrock

I beg to move Amendment No. 17, in page 17, in page 11, leave out lines 13 to 36 and add all other rates of income tax shall be the same for 1977–78 as for 1976–77". The amendment concerns the tax concessions given in the Budget to those who have to pay higher rates of income tax. If adopted, it would save £320 million, which the supporters of the amendment argue would be better spent in giving greater relief to the lower paid or in more greatly funding child benefit.

The arguments to which the Chancellor of the Exchequer has listened over the last few weeks have led him to give these tax concessions to the higher paid. He has been seduced yet again by the siren voices of the CBI. He has listened to the argument that suggests that the social contract has brought about a significant improvement in the relative position of the low paid at the expense of the higher paid. He has listened to the view that the relative rewards of mangement and professional groups have been severely eroded because of the effects of the incomes policies. Both arguments are false, and the Chancellor should not even have listened to them, let alone have been taken in by them.

Let us look at the effect of incomes policy during 1975–76, which is the only year for which we have full statistics available. We can compare matched groups and see, for example, that the earnings of accountants increased by 22 per cent. in that year while the earnings of manual workers went up by only 17 per cent. It may be suggested that by picking out accountants I am putting the argument in the most favourable terms for myself, but the sorts of increases gained by accountants in that year were not untypical. In every case the percentage increase of non-manual groups was higher than the percentage increase for manual workers.

The figures show that the first year of incomes policy did nothing to give a greater benefit to low-paid manual workers at the expense of the higher-paid. We do not have the full statistics for 1976–77, but there is no reason to believe that there has been an improvement in the position of the low paid during the past year at the expense of higher paid, non-manual workers. The reason is that the best chance of such an improvement coming about was in 1975–76—the year of the flat-rate £6 per week increase.

Generally, non-manual workers have received greater percentage increases than have manual workers. In the weeks preceding the Budget there were many rumours of tax concessions, and middle management made its voice heard. Middle managers are supposed to have been especially badly treated, but if we look at the way their relative position changed, we find that in 1975 the management group received 189 per cent. of the earnings of the lowest paid group and in 1976 that figure had risen to 195 per cent. In other words, the differential between middle management and the lowest paid has increased while the pay policy has been in operation.

We cannot look only at increases in wages and salaries, because the management group benefits also from increments, artificial regrading or promotion as a way round the pay code and fringe benefits that are not reflected in the earnings figures to which I have referred. A survey of the salaries of 7,000 executives in nearly 600 companies brought this out clearly. It showed that the average increase in executives' salaries was £508 in the year up to July 1976—when the maximum increase was supposed to be £312 a year. In that period, the average company secretary in the private sector received an increase of £803, and the report also shows an increase in the number of employees receiving fringe benefits.

In that period, certain professional groups managed to maintain or even improve their relative position in the structure of rewards. Meanwhile, the low paid suffered not just from having their wages held down but also because their overtime rates remained unchanged. They also suffered from the effects of income tax on those overtime rates and, although the low-paid workers would benefit most from a consolidation and raising of the tax thresholds beyond that which the Chancellor has offered in the Budget, nothing of that sort has been seriously offered as a way of improving their position.

It is clear that the Budget has done little to improve the lot of the lowest paid. If we take the very lowest paid, we can see what an enormous difference in wages and salaries exists in our society and that the Chancellor of the Exchequer in the Finance Bill does little or nothing to correct it.

Let us take those covered by the 43 wages councils. These set legal minimum rates of pay for about 3 million people. The Opposition weep crocodile tears about the low-paid workers and the need for an incentive to work. When I look at the wage rates for these 3 million people, I cannot understand why they bother to go to work at all. But, of course, if the Opposition spent less time weeping crocodile tears and more time asking for the Government to increase the investigation of those employers who fail to pay the minimum wages, for more charges to be brought against mean and stingy employers, and for more severe punishments to be imposed on those same employers, we might no longer regard them as crocodile tears.

Photo of Dr Oonagh McDonald Dr Oonagh McDonald , Thurrock

Let us get back to those covered by the wages councils. After two stages of pay policy, this group's wages range from £34 at the top end to £23·35 at the bottom end of the scale. When we look at those figures, which are bad enough as they stand, we have to remember that many workers have not yet received stage 2 of the pay policy, for about one-third of the wages councils have not yet come to a decision, although it is now May, about the stage 2 settlements. But, of course, the problems of these workers are made worse, not better, by the tax system. It has become increasingly less progressive each year and is having a severe effect on the living standards of the low paid. When we take national insurance contributions into account, we see that they suffer even more from this kind of imposition.

The Chancellor of the Exchequer claims to have helped this group. Raising the tax threshold does help, and no doubt low-paid workers and the least well-off are glad of the little concession that the Chancellor has given in this Budget. Some people have been brought out of tax altogether, and some will get some boost to their income during the course of this year. But when we look at the figures given with the Finance Bill, we find that they are not among those who benefit most, as the Treasury's own figures make clear.

The costs of tax concessions in the Finance Bill to those who earn under £4,000 a year are £796 million. To those earning £4,000 a year and more, the cost of the concessions is £1,454 million. In fact, what the Chancellor has done in this Budget is to use the tax system to widen differentials and not to decrease them. This is directly contrary to the priorities as set out by the TUC and the Government—that is, to help the low paid most—at the beginning of the social contract.

If we look at what has been done in the Budget, we find first that the increases in the personal tax allowances are not enough to restore them to their real value of a year ago. Secondly, we find that the increases in the tax allowances are more than enough to offset the effects of inflation for the higher paid.

4.15 p.m.

When it comes to cushioning people against the worst effects of inflation, the Chancellor has quite deliberately rigged the Budget so that it protects the higher paid—not, I agree, the most highly paid—much more than the lower paid. Perhaps the Chancellor has reason for doing this, for the Chancellor takes first the average male earnings as being £80 a week. I shall not argue about that figure. It is possibly a little bit up or down. But he does not notice that 60 per cent of male wage and salary earners earn less than £80 a week.

The Chancellor is one of two people in the country at the moment who believe that skilled workers earn £120 a week. The first is a Mrs. King, who wrote to the Prime Minister about this point a couple of weeks ago and complained about it. The other is the Chancellor. If skilled workers are earning £120 a week, I should like to know where those skilled workers exist. There may be one or two who, because of overtime and so on, have reached that magnificent sum, but in talking to workers in the engineering industry I find that for a 40-hour basic week engineers' earnings are somewhere between £58 and £65.

Taking average weekly earnings for typical engineers during March 1977—this is including overtime and so on—a typical month goes like this: first week, £72, second week, £81, third week, £75, and fourth week, £90. That, of course, includes overtime, bonuses and so forth, but, in spite of all those efforts on the part of a skilled engineer, it is still nowhere near £120 a week. If we take miners, for example, and look at the wages of face workers, we find that the top rate is £70 a week, with surface workers and other underground workers earning considerably less than that.

In other words, skilled workers are nowhere near the figure of £120 a week which the Chancellor has dreamed up in order to justify the kinds of tax concessions that he gives in his Budget. It is no wonder that The Sunday Times reported that there had been laughter in the executive washrooms after the Budget. But, of course, there was no laughter in the toolrooms, as the by-election result at Stechford two days after the Budget no doubt showed, but apparently not clearly enough.

To sum up, this Budget does not do enough to help working people, neither skilled workers nor unskilled manual workers. By adopting this amendment and saving £320 million, the Government could better use that sum to benefit the low paid. This could be done either by raising the child benefit by about 50p a week, or, by abandoning the tax reduction from 35 per cent. to 33 per cent., raising the threshold of the child benefit—this would benefit those who most need help—rather than falling once again for the line that is shot by the CBI.

Photo of Hon. Nicholas Ridley Hon. Nicholas Ridley , Cirencester and Tewkesbury

I came to listen to the hon. Member for Thurrock (Dr. McDonald) thinking that she would talk about the higher rates of tax, but instead she talked about rates of earnings. I have no criticism to make of her because of that, especially as she succeeded in keeping within your watchful eye, Mr. Godman Irvine. On the other hand, if the hon. Lady can do that, I suppose I am not debarred from making a few remarks about earnings.

I wish I had known that the hon. Lady was going to do this, because I have on my desk a table of the increase of earnings in the public sector since the Government came to power. Unfortunately, I shall have to try to remember the figure. I think I am right in saying—it might be a few points wrong—that non-manual public servants, that is to say, the Civil Service, since the Government came to power have had on average an increase of 92 per cent. in earnings, whereas in the manual grade the figure is 78 per cent. In a sense this bears out the point that the hon. Lady was making in regard to the public sector, but if she were to look at the figures for the private sector she would find a very different story.

Another ground on which the hon. Lady may be said to be putting misleading figures before the House is that she mostly quoted figures for 1975 over 1974, when, of course, there was no pay policy—

Photo of Dr Oonagh McDonald Dr Oonagh McDonald , Thurrock

I said repeatedly 1975 to 1976.

Photo of Hon. Nicholas Ridley Hon. Nicholas Ridley , Cirencester and Tewkesbury

Obviously, I misheard the hon. Lady, but the point is still valid—namely, that if she examines the whole period from 1976 to 1977 she will find a greatly reducing differential.

There is another point which the hon. Lady failed to take into account. As inflation moves people through wage increases into the higher bands of tax, net incomes are much more greatly reduced. I am certain that if the hon. Lady were to present those figures in terms of net income, after allowing for inflation in the period between the time the Government came in and the present, she would find a great compression of differentials. I commend her to make that calculation. If I had known that she was about to mention the subject of earnings, I would have worked out the figures before I rose to speak.

It is a good job that the words of hon. Members who speak in these discussions seldom if ever find their way to the constituencies. I do not think the speech made by the hon. Lady this afternoon would go down very well in Thurrock. I promise that I shall not go to Thurrock and tell them what she said. She will probably remember that recently there were strikes at The Times among printers, at British Leyland among toolroom workers, and at Heathrow among engineers—strikes all concerned with differentials. A million days were lost due to the erosion of differentials because workers wished to reassert the relative position.

I know that these matters are awkward for the Labour Party. The new doctrine of mid-term unpopularity has taken over in Labour minds from the doctrine of the manifesto. Each time Labour loses a local election, it will all be put down to the doctrines of mid-term unpopularity. It is the same sort of problem faced by the Russian leaders, and the problem in their case is that there is no end to their term of office. Indeed, what worries me is that there may be no end to the term here, if the Lord President has his way. But these matters touch democracy and the hon. Lady must pay heed to them. I was told the other day that democracy is very similar to sex—when it is good it is very, very good and when it is bad it is not all that bad. That is my advice to the hon. Member for Thurrock.

The hon. Lady should listen to the people, because a large part of the unpopularity of the Labour Party is due to the compression of differentials which, under stages 1 and 2, has caused intense irritation among the workers. Whether she can find figures to prove that that is wrong or right, I must tell her that that is the fact. Compression of differentials is not only infuriating to the skilled and hard-working employee, but it is infuriating to managements, who have the remedies in their own hands by ceasing to manage Britain and going and managing elsewhere. That is the effect which the hon. Lady's policies are having on this country.

Photo of Mr Ronald Thomas Mr Ronald Thomas , Bristol North West

I agree with the hon. Gentleman, but let us come to the point of the amendment. We are talking of people who receive £7,000 a year-plus. We are are not talking about the toolmakers of British Leyland and others who rightly protest against the incomes policy, which has the support of the Opposition.

Photo of Hon. Nicholas Ridley Hon. Nicholas Ridley , Cirencester and Tewkesbury

I can talk about anybody I like. I am not going to be told about whom I may talk. I am talking about skilled workers. I make it clear to the hon. Lady that her policies for total blanket egalitarianism are not popular in this country and that the Labour Party will commit political suicide if it persists with them. Whether the matter is rectified by removing the limits of pay rises for the higher earners or by a major realignment of the higher tax bands is not so important as that the Labour Party should realise that the British are not egalitarian-minded. I repeat that the policies pursued by the hon. Lady are leading to electoral suicide.

We are told by the Prime Minister about the golden decade that is to come in the 1980s. It would be better to describe it as stage 5 to stage 15. When the great economic miracle arrives, we are told that there will be enormous resources available from the great profits of British industry and the technological white heat, and all that rubbish, which will flow in, including the profits from North Sea oil. The impression is that the Chancellor of the Exchequer will be able to make major tax cuts in the golden decade—a decade which never actually arrives. But how is the hon. Lady intending to employ that revenue which the Chancellor intends to give away? Will she reduce the higher rate taxes, or will she spend it all on child benefit, more hospitals and more roads?

It would be helpful if, in the hypothesis of economic planning, the Labour Party were to say whether it believed that the State knew better than anybody else how to spend everybody's money, and whether it will continue to compress differentials or take money away from the higher earners—managers or skilled workers—or will let that money go back to the people to fructify in their pockets.

Photo of Sir John Hall Sir John Hall , Wycombe

Does my hon. Friend not agree that it is only by cutting the taxes of those who create the earnings that we shall have any chance of reaching the golden age about which my hon. Friend speaks?

Photo of Hon. Nicholas Ridley Hon. Nicholas Ridley , Cirencester and Tewkesbury

My hon. Friend makes the point on which I am about to conclude. The hon. Member for Thurrock has fallen for the fallacy of the static cake. She believes that there is a thing called the national cake, that it is always the same size, and that all one has to do is to allocate the slices to everybody and to attempt to make each slice nearly the same. But the cake is not static, and there are two things that can happen to it. The cake can either grow as the years go by or, under a Labour Government, it can actually become smaller.

The policy pursued by the Labour Government has resulted in a cake which daily gets smaller and, as the slices become more equal and smaller, everybody's slice becomes smaller. That is the reason for the unpopularity of the Labour Party. If we allow the cake to grow, not only will there be a growing slice for everybody but there will be more and more larger slices for some than for others. Judging by the hon. Lady's remarks, that simple little thought has never crossed her mind.

The way to make the cake grow larger is to employ the best managers, the best investors and the best entrepreneurs—the people who can move industry into the modern era and make investments that succeed rather than fail. That is what will result in increased prosperity.

My final message to the hon. Lady, who spoke most charmingly and delighted the House with her elegant contribution, is that until she and her party realise these things, the people of this country will be condemned to suffer a dwindling standard of living. One could term it equality of misery for all, and that is what is happening under Labour rule. I am sorry that the hon. Lady had to leave the Chamber and was unable to hear my peroration.

4.30 p.m.

Photo of Mr Ronald Thomas Mr Ronald Thomas , Bristol North West

It was interesting to hear the hon. Member for Cirencester and Tewkesbury (Mr. Ridley) express such anxiety about the possibility of the Government committing suicide. It is similar to the advice recently given by the right hon. and learned Member for Surrey, East (Sir G. Howe) on public expenditure. Unfortunately, the Government accepted that kind of advice, although the right hon. and learned Member said that it took the Government three instalments to do what he had advised them to do in one.

I believe that this Budget—and I speak as a member of the Labour Party—does not do anything like enough to help working people. They have seen their standards of living cut considerably under the social contracts in the hope of winning a quid pro quo in measures to deal with unemployment, increases in social benefits, improvements in health, education provision and all the rest of it. While they have seen cuts in their earnings they have also seen cuts in the social wage and unemployment rising to an intolerable level. The Government have followed far too much the kind of orthodox Tory policies demanded by the Opposition. We shall begin to deal with the capitalist crisis in our country only by means of a totally different economic strategy.

Photo of Sir Raymond Gower Sir Raymond Gower , Barry

Has it not occurred to the hon. Gentleman that companies in successful capitalist countries such as West Germany, Holland and the United States make bigger profits and pay bigger wages, that individuals and companies are taxed less, and that Holland and West Germany, for example, can afford bigger social benefits? Does he realise that by doing the things he advocates we are lessening the ability to pay such social benefits?

Photo of Mr Ronald Thomas Mr Ronald Thomas , Bristol North West

The hon. Gentleman should remember that West Germany has about 1 million unemployed after sending back more than 1 million immigrant workers to Turkey, Yugoslavia and elsewhere. In many debates here it has been shown, as it will no doubt be shown again, that rates of taxation in Britain compare quite favourably with those in all the other countries which the Opposition claim have such considerable virtues.

My hon. Friend the Member for Thurrock (Dr. McDonald) was right to say that this part of the Budget gives a considerable tax handout to the high income receivers, those who, with allowances—on high mortgages and the rest—are probably earning £7,000 to £7,500 a year and more. The Budget Statement often talks about "income", but we are talking here about taxable income after all kinds of allowances. If we agree on nothing else we should all agree that those with the highest level of earnings have all the advice possible from accountants and others to ensure that they receive the highest possible allowances.

The Sunday Times, looking at this part of the Budget, said on 3rd April: The fattest favours go to the married man, with no children, on £22,225 a year, the sort of money a director of a biggish industrial company … earns. He makes a clear £916 a year out of the Budget, a massive 9·4 per cent. increase in his take-home pay, something he could never have made out of any conceivable jump in pay under the old tax rules. And only 1·2 per cent. of this is conditional. All this is conditional on the move from 35 per cent. to 33 per cent. These high income receivers will have three bites at the cherry. They will receive their part of the increase in the tax thresholds; they will benefit from the reduction in the standard rate from 35p to 33p, if it happens; and they will gain something from the change in the bands above £6,000.

It was suggested that my hon. Friend the Member for Thurrock was talking too much about earnings, but earnings are related to this matter. The only justification given by the Government Front Bench is that a certain number of our supporters—we have been given no estimate, and I am not concerned about the Opposition's supporters—fall within these taxable income bands. I question this very much. As even my right hon. Friend the Chancellor said in his Budget Statement, it is one thing to talk of average earnings. I am sure that my hon. Friend the Minister of State, with his statistical knowledge, will agree with me—even if no one else will—that to talk of average earnings is often nonsense. Let us take, for example, the level of average incomes last October, which we can raise to allow for any increases under stage 2 of the incomes policy. Average earnings for male workers then ranged from £53 to £76, but the so-called average earnings are very misleading.

The latest detailed breakdown, as far as I know, is in the New Earnings Survey for 1976 produced by the Department of Employment. I take manual workers first. With overtime, payments by results, bonuses and so on taken into account, the median level of weekly earnings for male manual workers was £62. This figure, which can be updated to allow for the phase 2 award, with an increase of 4 per cent. or 4½ per cent. means that 50 per cent. were earning less than £62. The third quartile were earning £75 a week, which means that 75 per cent. were earning less than £75. The highest decile were earning £90 a week, so 90 per cent. were earning less than that. We see that only 5 per cent. were earning more than £100 per week.

We are led to believe that some people were earning at least £120 a week, and political capital is made out of that, but, according to the statistics, even for non-manual workers the median was £73·9, which meant that 50 per cent. were receiving less. The upper quartile were earning £96·4, so 75 per cent. were receiving less than £96. The top 10 per cent. were averaging £123·7. There are only a tiny few in that category, a fraction of 5 per cent. of manual workers and a fraction of 10 per cent. of non-manual workers, depending on their allowances.

The other argument is that the high level of taxation in Britain produces a disincentive effect. We can only presume from that that there are executives and innovating entrepreneurs in Britain who are calculating every day that they will give not 100 per cent. effort but only 90 per cent., who do not give a day for Britain but say each morning "Let me work it out. In Germany I would pay only so much tax, so I shall work only 75 per cent. as hard as I might have done. I shall write only three-quarters of a memo instead of the whole of it. I shall attend only half the meeting instead of the whole meeting". That idea is nonsense. Are some of these people selling Britain down the river by refusing to use their capabilities to the full, by holding back 10 per cent., 20 per cent., or 30 per cent., because of the monetary aspect?

I think that my hon. Friend will agree that there has been no detailed analysis in recent years of the so-called disincentive effect and levels of taxation. I do not know of any study since the Radcliffe Report some 20 years ago. Therefore, I think that I have a right to quote what that distinguished panel of economists said on the disincentive question. They said in paragraph 149: But if we are asked to infer from this that the heavy rates have any special disincentive effect upon the receivers of the higher levels of income, so as to justify a shifting of the existing weight of taxation from these ranges to lower levels of income, we are bound to reply that we see no evidence that the higher income earners are specially affected by disincentive. I agree that that was said some years ago, but I repeat that there has been no detailed study since. All that we have had is innuendo and blatant comment from the Conservative Party.

Photo of Sir John Hall Sir John Hall , Wycombe

Does the hon. Gentleman agree that the disincentive to skilled workers, for example, of the combination of restrictions on pay increases and high taxation is shown by the fact that they are striking with increasing frequency? Does he also agree that the disincentive to higher-paid executives is measured not by their day-to-day reaction to their task but by the increasing number leaving this country to find jobs abroad? If the hon. Gentleman wishes to look at a survey, he should look at the one recently carried out by the chemical industry, which found example after example of evidence of increasing numbers of senior men and, even worse, skilled chemists leaving this country because they were no longer able to keep their families in the style in which they thought they were entitled to keep them, under the tax system operating here.

Photo of Mr Ronald Thomas Mr Ronald Thomas , Bristol North West

On the latter point, skilled and professional workers have been leaving this country since we opened up the New World 200 or 300 years ago. I do not believe that the figures were any different under the Tory Government, who bent over backwards to give massive tax hand-outs to the wealthier members of our community.

I have seen nothing in the strikes about differentials regarding taxation. The strikes have been concerned with what the workers felt were rigidities in the Government's incomes policy. Some Labour Members are opposed to that policy and have tabled a number of amendments to try to push some flexibility into it.

In my judgment the Budget does not go anywhere near far enough to help those who vote for the Labour Party at local and General Elections. That is all I am concerned about. I am not concerned about any others.

I suggest that the money which is proposed to be given to these high income earners could be better used to push up the tax threshold or to deal with some of the situations which have been created by the cut-back in public expenditure. I think that we should reconsider having a smaller band rather than a marginal rate of 35 per cent. I know that this matter was discussed last night. The Government could do something about the marginal rate of 35 per cent.

All in all, what is proposed for working-class people is insufficient. I appeal to the Minister to delete this subsection and to use the money for better purposes.

Photo of Mr Jeff Rooker Mr Jeff Rooker , Birmingham, Perry Barr

This debate is about a small section of the working population. I shall not repeat what was said by my hon. Friend the Member for Bristol, North-West (Mr. Thomas). We are talking about the higher tax rate bands. We are not talking about skilled craftsmen, because they are not paying 40 per cent. tax on any part of their income. They may bellyache justifiably about the general rate of 35 per cent. tax, but they are not paying the higher rates of tax. This debate is about page 11, lines 13 to 36 of the Bill, and nothing else.

The Chancellor in his Budget Statement said that 80 per cent. of the working population were earning between £50 and £110 a week. The Treasury's figures, backed by the Department of Employment, show that 15 per cent. of the working population earn less than £50 a week. Therefore, that leaves 5 per cent. earning more than £110 a week gross. We are concerned not with gross earnings but with taxable earnings. We are talking about those earning £7,000-plus a year.

Precisely whom are we talking about today? Who are the people earning £7,000-plus a year—£140 a week—to whom the Government wish to give a massive tax handout? They are not the skilled craftsmen in my constituency. They are certainly not any of the British Leyland toolmakers who were on strike a couple of months ago. Not one of them is concerned with this debate. It is false to bring in such people, because it makes it look as though we are seeking to cut back on the net take-home pay of millions of ordinary skilled workers. That is far from the truth.

4.45 p.m.

My hon. Friend the Member for Bristol, North-West referred to the New Earnings Survey 1976 for the general level of earnings. Part D—"Analysis by occupation"—tells us something about the occupations in which gross earnings of more than £140 a week are possible. When I look at Table 86, Average gross weekly earnings, hourly earnings and weekly hours Full-time men, aged 21 and over", I could not find anyone earning £140 a week. That is because the table refers to averages. Not one occupation, manual or non-manual, achieves average earnings of £140 a week. The highest is accountants at £86 a week. That is the average.

Table 96 gives the top 10 per cent. for the various occupations. Therefore, I cast my eye down the top 10 per cent. to pick up occupations in which gross earnings are more than £140 a week, because the Government seem to believe that such people are in dire need of assistance.

Top of the list are top managers in trading organisations, who earn over £207 a week, so they are not too badly off anyway. Next come judges, barristers and solicitors, who are largely represented in the House of Commons. In fact, they are so well represented that when we have a Bill which involves the legal profession the Standing Committee cannot meet in the mornings because such Members are at the courts. That is why the Criminal Law Bill Committee can start only at 4.30 p.m. today. The top 10 per cent. of judges, barristers and solicitors are on £193 a week. That is over £140 a week. The Government think that such people are in dire need of assistance. The next in line are company secretaries, who are in receipt of £157 a week.

Going down the list, the top 10 per cent. of finance, insurance and tax specialists—they know a thing or two about Finance Bills—are earning £190 a week. They are well within the Government's guideline of £140 a week. Personnel and industrial relations officers and managers are next. The top 10 per cent. are in receipt of £156 a week. Journalists just come in. The top 10 per cent. of our friends in the Gallery are on £144 a week. I suspect that there are not too many of them in the Gallery, although most of them earn more than full-time Members of Parliament.

Architects and town planners, who make a great contribution to society, earn £149 a week. They are well within the Government's guideline for urgent assistance. These are the people on whose behalf the Treasury must make out a case for assistance.

I do not want to be accused of putting only one side. Looking down the manual workers' list in Table 96 I could not find anyone earning over £140 a week. The top 10 per cent. of toolmakers earn £91 a week. I appreciate that these are April 1976 figures and that perhaps they should be adjusted by between 8 and 9 per cent. Even so, the top 10 per cent. of skilled toolmakers would be nowhere near paying the higher rate of tax.

Photo of Mr Ian Mikardo Mr Ian Mikardo , Tower Hamlets Bethnal Green and Bow

My hon. Friend is making an overwhelming case which demands an answer from the Government. The one group for which the highest decile is not included in those tables comprises those in receipt of unearned income. They are the people who will benefit most from this provision.

Photo of Mr Jeff Rooker Mr Jeff Rooker , Birmingham, Perry Barr

My hon. Friend is perfectly correct. I shall conclude my remarks with an example of a group which is not within the figures that I have quoted from the New Earnings Survey. Not one of the manual workers in that section pays the higher rate tax. I do not mind my speech being printed in the local Press. I do not get enough publicity. None of my constituents is affected by this higher rate of tax. There may be one or two judges and barristers lurking in the undergrowth who may vote Labour. They are right to do that, because my Government have done more for them than any Tory Government.

It has been said that Britain has a high rate of taxation. A set of statistics appears in the April edition of Economic Trends for the distribution of tax units by income for the year 1974–75. I assume that the figures are the latest available. Total income before tax on all earnings in this country—28 million tax units—was £64,000 million. The amount of tax paid on that income was only £11,000 million. That is not an astronomical sum of tax to pay for the goods and services that we require in the public sector. Those figures give the lie to the theory that Britain is a high tax rate country. It is not true. Britain is not overtaxed.

The hon. Member for Cirencester and Tewkesbury (Mr. Ridley) talked of take-home pay. He made an excellent point an that important matter. I can give a good example. Since 1967 companies have been forced to publish the broad bands of directors' salaries. At first, companies lumped them together in the form of gross salaries. When people like myself "misused" those figures by telling their constituents about them, some companies began to publish a column for take-home pay alongside gross income. I have told the House before about the Delta Metal Company and how Viscount Caldecote received a pay increase during the pay freeze.

In its 1975 accounts, the Delta Metal Company said that two directors—I do not know which two—received take-home pay of between £12,500 and £15,000 a year. The 1976 report shows that one of those directors remains in that band. The other director has not merely moved up into the next band—that is not good enough—but he has moved to the £17,500 to £20,000 bracket. Assuming that he was on the highest level of this band in 1975 and earning £15,000 a year and that he is now on the lowest level of his present band, earning £17,500, he must have had an increase in take-home pay last year of not less than £50 a week. The company's annual report shows that clearly. The company boasts about giving figures for take-home pay. It is not breaking the law, but the hon. Member for Cirencester and Tewkesbury said that take-home pay was important.

Photo of Mr John MacGregor Mr John MacGregor , South Norfolk

The hon. Member said that the tax take of income was £11 billion. The latest figures show that it is forecast to be over £18 billion. Is that not what everyone is complaining about at a time when incomes are low and inflation high?

Photo of Mr Jeff Rooker Mr Jeff Rooker , Birmingham, Perry Barr

What the hon. Member says is true, but income before tax has gone up. The percentage of income tax paid out of total income is small.

Income tax represents a large part of total Government revenue. We are always being told by the CBI that company profits and corporation tax pay for our hospitals and schools. That is a lie. Recent figures from the Treasury show that corporation tax accounts for about 9 per cent. of Government revenue. Most revenue comes from income tax—from the pockets of all workers, whether they are high or low paid. Corporation tax no longer funds the social services in this country. They are paid for by income tax, straight from the pay packet.

I do not like that system. I should like it changed, but I should like the Government to take more from those earning more than £140 a week. There are only a few such people. Only about 800,000 people, or about 3½ per cent. of the working population are affected. They can afford to pay that tax.

The Finance Bill seeks to introduce concessions for certain people working abroad. The New Earnings Survey does not include such people. There is no column for members of the European Commission, for instance. Mr. Roy Jenkins, the President of the Commission, earns £5,000 a month, tax-free. He also gets expenses. There is no reason why Mr. Roy Jenkins should not say to the Inland Revenue "I am a Socialist worker. I know how to screw the workers and close the tax loopholes in the Cayman Islands. Please tax me as if I were working in Britain. I can afford it because I earn £70,000 a year gross." This man knows no distinction between take-home pay and gross pay.

The Birmingham Post published an article about this. In the first edition the article was entitled Socialist Workers". The copy in the Library is entitled "Wages of Socialism" It is written by the former editor of the Sunday Mercury, who has a column in the Birmingham Post. He says that people should not get on this public sector gravy train in a manner which abuses Britain's entry to the Common Market.

I know that I shall be called to order if I continue along those lines, but it is a good example of an occupation that is not included in the list of those earning more than £140 a week. I shall have no compunction about voting for the amendment.

5.0 p.m.

Photo of Ms Audrey Wise Ms Audrey Wise , Coventry South West

Opposition Members are strangely silent in this debate. That certainly improves the level of debate. However, that is not the reason for their silence. They are quiet because they hesitate openly to defend these tax concessions to the best-off. Even Opposition Members are not too sure of their ground and of how they would be received by ordinary people. Even when they have risen to their feet, they have managed to talk in ways which are completely irrelevant to the terms of the amendment.

As has been shown in the excellent speech of my hon. Friend the Member for Birmingham, Perry Barr (Mr. Rooker), the amendment is not about skilled workers, neither their wages nor their taxes. Skilled workers will not lose a penny if the amendment is carried. In fact, the Government would have £325 million available which they could dispose of as they chose to skilled workers, semi-skilled workers or unskilled workers, all of whom have a better claim to it than those earning £140 a week and more.

The hon. Member for Cirencester and Tewkesbury (Mr. Ridley) has now left the Chamber. He eulogised democracy. I was interested in that because he is the same hon. Member who, as a member of the Committee discussing the Industry Bill some two years ago, pointed out that he would rather be ruled from and by Brussels than by the elected Government of this country. I think that his attachment to democracy is, therefore, a little fickle.

However, it may have been improved by the fact—I regret to say this—that members of my own Front Bench are more and more seeking to carry out policies that smack of Tory policies. If, as the hon. Member for Cirencester and Tewkesbury suggested, they are committing suicide, that is the reason. "Midterm unpopularity" has nothing to do with the particular date on the calendar, but it has everything to do with the fact that too many policies are designed to help the better off and not those most in need.

The policy and the clause in the Bill about which we are complaining actually manages to give the highest benefit to those with a taxable income of £20,000 or more. The highest benefit goes to those people, in both percentage terms and absolute money terms. That is really outrageous. It would be outrageous coming from any Government, and it is both outrageous and sad coming from a Labour Government. That is not what we were elected to do. I think that my right hon. and hon. Friends on the Front Bench know that, although they will not admit it.

Photo of Ms Audrey Wise Ms Audrey Wise , Coventry South West

I shall go on for exactly as long as I choose. If the hon. Gentleman wishes to make a speech, I suggest that he tries to catch the eye of the Chair.

At the same time as we find amounts totalling £1,455 million being given to the higher paid, we are still in a situation in which a married couple can start paying tax, even after the Budget concessions, on an income of less than £24 a week. That is an extraordinary state of affairs. How can a Labour Government consider relieving those at the top of the wage and income scale at all when that is the situation at the bottom of the scale?

If there is an explanation, I should be genuinely interested in hearing it. It cannot be the incentive argument. My hon. Friend the Member for Perry Barr, in his analysis of occupations, has disposed of that. It cannot be maintained by a Labour Government that the main creators of wealth in Britain are those at the top end of the income scale. Surely all of us on the Government side of the House would agree that the wealth of the country comes from the hands of ordinary workers, and many of them are on really low incomes.

Therefore, surely the Government Front Bench will accept the amendment, having had a little longer to consider it. If they are short of suggestions as to how to use the £325 million, they should note that some of my hon. Friends and myself have tabled an amendment to Clause 21, which will also be discussed by the Committee of the whole House, which would enable the Government to give reliefs to certain people with children—widows, people with guardians' allowances and so on. Would not that be a worthy direction in which to channel some of this £325 million?

How can my right hon. and hon. Friends say that that kind of help to widows, one-parent families and the low paid cannot be afforded while at the same time they are giving massive amounts of money to people receiving £20,000 a year or more?

The man receiving £20,000 or more will get, on figures obtained through a parliamentary answer, £679 a year in tax relief. That is on the unconditional part of the Budget. If the conditional parts go through, the figure will be £799. That is almost as much as the new total personal allowance for a single person. I find it difficult to believe that my hon. Friend the Minister can have read and digested the figures in his own parliamentary answer. I shall certainly be very interested to hear his reply on the points that we are raising.

My hon. Friend the Member for Perry Barr made an equally valid point when he referred to the increased burden which is now falling on individuals rather than on companies. I wonder whether, at some stage during the passage of the Bill, my hon. Friend the Minister will comment on this matter, because it is a fact that the burden of taxation has shifted very substantially from companies to individuals. Many of my hon. Friends think that that is a very bad development.

Once again, I ask my hon. Friend the Minister to accept the amendment. It is entirely in line with the basis on which we were elected to the House of Commons. That was to achieve a shift in wealth towards working people and their families. In our election manifesto we were talking not about the top 10 per cent. of judges and barristers but about those at the lowest end of the scale, who have had the worst out of the Chancellor's Budget.

Photo of Mr Nicholas Budgen Mr Nicholas Budgen , Wolverhampton South West

It is not for me to add to the splendid exposition by my hon. Friend the Member for Cirencester and Tewkesbury (Mr. Ridley) in making the classic case for what I call the incentive argument. However, perhaps I may make some comments about the further arguments that can be adduced for allowing a diverse society to evolve with at least some members of that society both earning and keeping large incomes.

It is those who keep a reasonable proportion of a high income who are most of all the people who invest. It is not for me to comment, for instance, upon the splendid words that we have so often heard from the present Secretary of State for Trade, who so often reminds us that Government investment habits and intentions are more often than not mistaken, whereas if we allow the greater part of our investment to be undertaken by individuals—I am even so vulgar as to say "rich individuals"—there will be a diversity of investment decisions, which in the end is the greatest safeguard for the fullest employment of what the hon. Member for Coventry. South-West (Mrs. Wise) keeps describing as ordinary working people.

Those of us who want to see more investment, and investment in industries that will grow, and grow because they are truly profitable know that these investment decisions will be taken only by people who themselves have earned large incomes, have kept a large proportion of those incomes, and have made their individual decisions as to where they will get the best return for that money.

Photo of Ms Audrey Wise Ms Audrey Wise , Coventry South West

Would the hon. Member like to suggest that tax relief should be conditional on investment being made, and being made in this country?

Photo of Mr Nicholas Budgen Mr Nicholas Budgen , Wolverhampton South West

No, I am so biased as to believe in freedom. I believe that the individual is entitled to make his own decision about his own money. I concede immediately that in a free society some people, if allowed to keep a larger proportion of their income, will fritter it away. There are some people who, if they have £5,000 in their hands, will put it all on the nose of a horse, and others who will go to Monte Carlo and waste it. But that is an essential part of a free society. There are even some people who may decide not to work at all, but once again that is an essential choice in a free society.

Those who are prepared to work hard and risk hard will be most inclined to value the money that they are able to keep. They will make investment decisions on the basis of where they can get the best return. The place in which they can get the best return will be the place in which the workers have the most secure jobs. That is the investment argument.

There is a deeper and more philosophical argument which supports the retention of wealth and riches for those who work and risk hard. That is the independence argument and it is, perhaps, the most important of all.

Those persons in our society who keep wealth are more capable of forming an independent view of the great issues of the country than those who are dependent upon the whims of politicians. It matters not whether the politicians are from the dreaded National Front, the respectable Tory Party, or one or another of the Socialist parties. All of us are inclined to be wrong. All of us, when we have any sort of power, are likely to abuse it. Only by allowing individuals to have enough wealth and investment rights shall we see the creation of people in society who are prepared to dispute the orthodoxies of the moment.

I shall steal a quote that I heard from someone in the City—I do not mix much with these grand gentlemen; I am not respectable enough for such contacts. This gentleman said that if we had not had the barons, we should not have had the Magna Carta. Today if we do not have rich people, we shall have a nation of people who continue to believe in whatever the current orthodoxy may be.

5.15 p.m.

Photo of Mr Denzil Davies Mr Denzil Davies , Llanelli

In moving this amendment my hon. Friend the Member for Thurrock (Dr. McDonald) developed an interesting argument about wage differentials and their effect on an incomes policy. She said that she disapproved of the £320 million which, if the amendment is not carried, will be given to people with higher incomes. But the £320 million is not an amorphous sum that is going to some group of persons. It is necessary to break it down, and my hon. Friend did not do that. This £320 million relates to different areas.

To start with, it includes £45 million which represents the increase in the threshold for the investment income surcharge. This threshold has been increased from £1,000 to £1,500 for those under 65, and from £1,500 to £2,000 for those over 65. The investment income surcharge of 15 per cent. on top of the rate of tax will not apply until the income reaches £1,500 or £2,000, depending on whether a person is under 65 or over 65. Obviously, some of that money will go to people who do not need it. But I suggest that this is not unfair as many elderly people on fairly small incomes would, as a result of inflation, be caught by the investment income surcharge.

Most people when they retire have some sort of pension—a State pension, superannuation, or a pension from a pension fund. That is treated as earned income and is not taxed or charged under the investment income surcharge. But there are others—probably a minority—who cannot take advantage of the various pension arrangements, so they save their money. The income from these savings is not treated as earned income but is subject to the investment income surcharge. One reason for the modest increase in the threshold is that we want to help people in that category. Therefore, the £45 million will not necessarily go to those who are earning more than £20,000 a year.

Photo of Ms Audrey Wise Ms Audrey Wise , Coventry South West

I am interested in my hon. Friend's comments. Would he care to undertake to come back to the House with an amendment to meet the point that he is making? Some of us would be prepared to meet him on those terms.

Photo of Mr Denzil Davies Mr Denzil Davies , Llanelli

I am grateful to my hon. Friend for saying that. I will not bring an amendment forward, but, nevertheless, I am grateful for what she has said. The explanation that I have just given knocks out £45 million from the £320 million that the amendment seeks to remove from the Bill.

The next tranche is £90 million that the Exchequer loses as a result of raising the higher rate threshold from £5,000 to £6,000. But if we do not increase that threshold this year we shall bring 500,000 extra persons into the higher rate of tax for the first time. I do not know who all these people are, but they cannot be terribly rich by definition. Perhaps they are managers, skilled people, or households in which the income of the husband and wife total more than £5,000. They are not necessarily those who are earning very high salaries. If the amendment were accepted and the threshold kept at £5,000, the extra 500,000 people—some of whom may be Labour supporters—would find themselves with an increased tax bill this year because inflation and perhaps increases in their incomes would bring them into a higher rate of tax.

Photo of Ms Audrey Wise Ms Audrey Wise , Coventry South West

Will my hon. Friend accept that this argument would be more convincing if in his Budget the Chancellor had fully compensated for inflation at the lowest end of the scale? Bearing in mind that husbands and wives whose income is in excess of £5,000 can opt for separate taxation anyway, would this not take them out of the higher tax band?

Photo of Mr Denzil Davies Mr Denzil Davies , Llanelli

I doubt whether at these levels the option for separate assessment would make any difference at all. It is a fact that if the amendment were carried, 500,000 extra people would find themselves with an increased tax bill as a result of our not doing anything for them in the Budget. If my hon. Friends press the amendment to a Division and it is carried, that would be one of the consequences, even though it might not be intended.

Photo of Mr Ronald Thomas Mr Ronald Thomas , Bristol North West

If my hon. Friend is saying that 500,000 people might or might not be brought into a higher tax band, this must mean that for the Government to give this sort of tax hand-out other members of the community will have to pay more tax, or there will have to be a lower level of public services and a lower social wage than there otherwise would have been, which is far less beneficial to those people whom we represent.

Photo of Mr Denzil Davies Mr Denzil Davies , Llanelli

I would remind my hon. Friend that we are talking about £90 million. I suppose that one can have a few hopitals for that amount, but it is only a fraction of the income tax reduction of £2¼ billion in the Budget. One effect of this package of reduction of £320 million is to keep 500,000 people out of the higher rate tax bands. If we do not do this during this year, about 1·8 million people will be paying at the higher rate, whereas this change will bring the figure down to 1 million. The discrepancy is caused by the 300,000 who are now in the higher rate and who will come out of it. That compares with 300,000 people who were in the higher rate band in 1974.

I am not saying that the figure of 300,000 then was right—perhaps it should have been higher—but if one compares the position then with what the amendment would produce, one sees that six times as many people-1·8 million—would be in the higher bracket. As a result of the Budget changes, the number this year will be kept to about 1 million, but that is still three times the 1974 figure. My hon. Friends have talked about a shift in wealth and perhaps an increase by three times is relevant to that.

Therefore, if one takes the £45 million that my hon. Friend the Member for Coventry, South-West (Mrs. Wise) seems prepared to give me and the £90 million which perhaps she is not, the balance is £185 million. Does my hon. Friend wish to intervene?

Photo of Ms Audrey Wise Ms Audrey Wise , Coventry South West

I was making a gesture I do not agree that the £45 million change in our amendment is unjustifiable but was prepared to accommodate my hon. Friend—to compromise.

Photo of Mr Denzil Davies Mr Denzil Davies , Llanelli

I am grateful. As I said, the balance is then £185 million, part of which is a consequence of raising the threshold from £5,000 to £6,000. Then, of course, the higher thresholds have to be raised as well. Thus, most of that £185 million goes to those on the higher levels of tax.

It could be argued, as my hon. Friends have argued, that that money could be better spent. However, I repeat that that is £185 million out of a total income reduction of £2¼ billion. I was interested to note that my hon. Friend the Member for Thurrock did not suggest how this money should be better used. She suggested not reducing the basic rate by 2 per cent. and doing something else with all the money saved. Perhaps with that extra money we could introduce a reduced rate band, but if that is what my hon. Friend wants, she must face the fact that if there is no reduction in the basic rate, we shall not help many people in the middle and on incomes of lower than average who are clearly supporters of my hon. Friends.

Unfortunately, these are the choices that we have to make. No one says that we have done enough in this Budget for ordinary people. I wish that we could have done more. I wish that we could have introduced a reduced rate band and increased the allowances to take full account of inflation, but that would have cost an enormous amount—certainly not the £185 million or £320 million in the amendment. It would have cost far more than the total by which the Chancellor felt able to reduce tax in the Budget. Thus, in terms of the total tax bill, we are talking of very small sums.

Most of this £320 million will not go to those at the top end of the tax bracket. As a result of increasing the threshold, the top marginal rate of 83 per cent. will apply now to incomes of £21,000, not £20,000. That is not a substantial change and it is justified because of our high marginal rates.

I accept that the effective rate is the one that we should look at, but, unfortunately, people tend to consider the marginal rates instead. The marginal rate of 83 per cent. is high by international standards and in this field we must compete internationally. We have an interest in ensuring that managers come to this country when their multinational firms come to invest.

Photo of Mr Ronald Thomas Mr Ronald Thomas , Bristol North West

Would my hon. Friend confirm the statement in The Sunday Times of 3rd April that someone on £22,225 a year will save £796, plus £120 if the basic rate is reduced from 35 to 33 per cent.? That is over £900 a year.

Photo of Mr Denzil Davies Mr Denzil Davies , Llanelli

The figures may be correct and, taken in isolation, they seem rather horrific, but one must consider the amount involved in relation to the total tax bill. We want a tax system that is fair to most taxpayers, including those on average and below average incomes. That would cost far more money and £185 million would make no dent in the problem.

Photo of Mr Peter Rees Mr Peter Rees , Dover and Deal

To reassure his hon. Friend the Member for Bristol, North-West (Mr. Thomas), perhaps the Minister will tell him by how much the tax bill of the person he quoted went up as a result of the first two Finance Bills introduced by the Chancellor in 1974.

Photo of Mr Denzil Davies Mr Denzil Davies , Llanelli

I could not answer that question and I do not think that it is entirely relevant to my hon. Friend's point.

We have had long debates about the advantage of a reduced rate band over reducing the basic rate by 2 per cent. so perhaps I may give some indication of the cost. A reduced rate band of 25 per cent. on the first £1,000 of taxable income would cost £2·2 billion, which is almost equivalent to the £2¼ billion by which my right hon. Friend reduced taxation in his Budget. A reduced rate band of 30 per cent. on the first £750 of taxable income would cost £870 million and a reduced rate band of 20 per cent. on the first £500, as suggested by my hon. Friend the Member for Thurrock in the Budget debate, would cost £1·5 billion.

When one considers that £45 million of this reduction is on investment income surcharge and £90 million is to keep 500,000 people out of the higher rates, I think that my hon. Friends will agree that the remaining £185 million would not make much contribution to solving the problem. In terms of the whole Budget package, £320 million is not a large sum. We wish that we could have reduced the basic rate by more and increased the allowances by more, but that would cost an enormous sum and at the moment it is not possible. Therefore, if my hon. Friends wish to press the amendment, I ask the Committee to reject it.

5.30 p.m.

Photo of Mr David Howell Mr David Howell , Guildford

It would be wrong to let this occasion pass without saying how much we welcome the debate. Naturally, we do not welcome the amendment. We welcome the debate as it provides a good insight into the way in which the minds of hon. Members in the heart of the Labour Party are working. When we look at amendments of this sort on the Order Paper we are led to ask where those who have tabled them have been all this time. They are talking about a world that is passing away, or one that has passed. In a sense they are the parliamentary epigone, the pensioners of the past. They are museum pieces.

The arguments that have been put forward this afternoon, which the Minister has rightly put down, do not relate to the problems that the country or the ordinary people face. We all recognise the plight of the lower paid. They are grotesquely over-taxed. They are more highly taxed in income terms than they would be in any other country in the free world. However, it seems that the hon. Member for Thurrock (Dr. McDonald) is suggesting that the way to help the lower paid is to victimise middle income groups by increasing their taxation. That is what lies behind the amendment. To imagine that by victimising that group we shall help the lower paid is a proposition so bizarre that it is almost past understanding.

Photo of Mr Martin Flannery Mr Martin Flannery , Sheffield, Hillsborough

The hon. Gentleman is making a valiant attempt to defend the Labour Government while some of my hon. Friends are attacking them. The hon. Gentleman uses the word "victimising" to symbolise trying to take money from the very rich to give to ordinary people. He describes those who support that approach as epigones and people from museums. Is the focal point of the hon. Gentleman's argument that we should give more to those who have and take from those who have not?

Photo of Mr David Howell Mr David Howell , Guildford

The hon. Member for Thurrock spoke in a way that did not really become her of the need for punishment of those on higher incomes. I am arguing that if we want to help the lower paid the way not to do it is to victimise or punish those who are higher paid, which happens to be about 2 million in this country.

Photo of Ms Audrey Wise Ms Audrey Wise , Coventry South West

My hon. Friend the Member for Thurrock (Dr. McDonald) was not talking about punishing the higher paid or anyone else in respect of receiving, wages. My hon. Friend was advocating that we should punish employers who pay below the statutory legal minimum as set down by wages councils. She was speaking against the prosecution policy, which is, in effect, that employers should not be prosecuted for these flagrant breaches of the law. That was my hon. Friend's reference to punishment.

Photo of Mr David Howell Mr David Howell , Guildford

I take note of what the hon. Lady says. I shall check that in Hansard. If "punishment" is the word we are using, it is the punishment of the tax system that is hitting the lower paid. It is taking intolerable chunks out of low incomes and middling low incomes, which is something that I wish Labour Members below the Gangway would use more energy arguing about. If they adopted that approach, they would obtain a better deal for the workers.

In the past hour or so of debate we have witnessed a predictable attack. It has been so predictable that it has represented almost an authentic part of the old Britain that many people hoped had passed. It has been an entirely predictable attack on a gigantic cadre of trained, honourable, exceptionally hardworking and devoted people. As we know, there are about 2 million of them.

The Minister has said that last year there were about 1·8 million people in the higher paid bracket. However, the attack has spread over a wider number than that. There are about 2 million people in the £100 to £200 a week bracket. The attack on these people is an attack on management.

Some hon. Members on the Labour Benches below the Gangway may welcome the fact that we are approaching a management catastrophe. Every piece of evidence in every newspaper and daily and monthly publication brings it home that we are facing such a catastrophe. It is evident that the management cadre and the skilled worker cadre are totally demoralised. They are thinking, if they can, of voting with their feet. They are worrying with an intensity that cannot be right for output and production about their living standards and how to meet the bills. At the same time the hon. Member for Thurrock and others have argued that in some way they are being helped by the Budget.

Labour Members below the Gangway say that the management and skilled worker cadres have done better than manual workers. That defies the latest survey in The Times, namely, the national management salary survey showing that managerial pay rose by 1·8 per cent. last year compared with an average rise of 11·8 per cent. for other workers. The £6 or the £4·50 was not the average pay increase or the average earnings increase. In fact, 11·8 per cent. was the average whereas the average for management was 1·8 per cent. That is a colossal fall.

The figures show that for many managers and those in the middle and higher paid groups there has been a fall of over one-third in their net purchasing power and take-home pay. These are the people who have come under attack and faced the indignation of Labour Members below the Gangway. Those hon. Members have claimed that there has been more help in the Budget for those people. If they analysed the facts, they would find that there has been very little net help.

According to some calculations, management is supposed to have gained in money terms although not in real terms. That is as a result of lower taxation on higher incomes. However, against that we must set increased national insurance contributions. There was a large increase for those earning £100 a week, for example. They have had to pay higher rates, increased fuel bills, increased petrol prices, increased vehicle excise duty, more expensive bank loans, more expensive car use and the fact that interest-free loans will be taxed next year. Commuter fares have also been increased.

Against that background we believe that there should be an improvement. It is said that the Budget does not harm these people and that it seeks to restore incentives, but the idea that there has been an improvement is absurd.

If Labour Members think that they can treat the management cadre in this country in such a way, they have failed to learn not only from experience in this country but in the Soviet Union and practically every other country. No other country would dream of treating its skilled workers and managers as we propose, let alone in the manner proposed by some Labour Members.

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

What increase in national insurance contributions has there been for anyone with an income of over £145 a week?

Photo of Mr David Howell Mr David Howell , Guildford

From 6th April 1977 the £100 a week man will pay another £2·19

while the £150 a week man will pay another £3·54. That is the effect of the adjustment of national insurance contributions from 6th April.

I was about to say that the debate has highlighted the catastrophic damage that has been done to management, but perhaps that is an exaggeration. The truth is that the debate has done catastrophic damage to the prospects of the Labour Party. That is why I began by welcoming the debate. I am glad that certain things have been said by Labour Members below the Gangway.

The reality is that workers do not spend their time in nail-biting envy of management and management rewards. They are not envious in that way of the differentials of those with greater responsibilities and higher pay. That is not the way in which they think. That is the way of thinking of the small museum group on the Labour Benches.

Most working people know that good management needs good pay. I suspect that most working people would argue that far greater rewards are required for responsibilities and skills than anything remotely offered in the Budget. That is why we shall be moving amendments on those lines. That is why my right hon. and learned Friend the Member for Surrey, East (Sir G. Howe) will be spelling out the real case in later speeches in Committee if he catches your eye, Mr. Godman Irvine.

That is why we welcome the half hearted defence of the Budget on the part of the Minister of State. That is why we believe that it does not begin to recognise the real needs of working people, the lower paid, management and productive capacity.

Question put, That the amendment be made:—

The Committee divided: Ayes 53, Noes, 205.

Division No. 128]AYES[5.39 p.m.
Allaun, FrankColquhoun, Ms MaureenHeffer, Eric S.
Atkins, Ronald (Preston N)Cook, Robin F. (Edin C)Koyle, Doug (Nelson)
Atkinson, NormanCowans, HarryHughes, Robert (Aberdeen N)
Bennett, Andrew (Stockport N)Edge, GeoffHughes, Roy (Newport)
Bidwell, SydneyFletcher, Ted (Darlington)Jeger, Mrs Lena
Buchan, NormanFowler, Gerald (The Wrekin)Jenkins, Hugh (Putney)
Canavan, DennisGarrett, John (Norwich S)Kelley, Richard
Carmichael, NeilGould, BryanKilroy-Silk, Robert
Cohen, StanleyHayman, Mrs HeleneKinnock, Neil
Lamond, JamesMiller, Dr M. S. (E Kilbride)Skinner, Dennis
Latham, Arthur (Paddington)Miller, Mrs Millie (Ilford N)Spearing, Nigel
Lee, JohnNewens, StanleyThomas, Ron (Bristol NW)
Loyden, EddieOvenden, JohnThorne, Stan (Preston South)
Lyon, Alexander (York)Richardson, Miss JoWilson, William (Coventry SE)
McDonald, Dr OonaghRoberts, Gwilym (Cannock)Wise, Mrs Audrey
Madden, MaxRooker, J. W.
Marshall, Jim (Leicester S)Rose, Paul B.TELLERS FOR THE AYES:
Maynard, Miss JoanSelby, HarryMr. Russell Kerr and
Mikardo, IanSilverman, JuliusMr. Martin Flannery
NOES
Abse, LeoHarrison, Walter (Wakefield)Perry, Ernest
Archer, PeterHatton, FrankPrice, William (Rugby)
Armstrong, ErnestHealey, Rt Hon DenisRadice, Giles
Ashton, JoeHenderson, DouglasRees, Rt Hon Merlyn (Leeds S)
Bain, Mrs MargaretHooley, FrankRoberts, Albert (Normanton)
Bates, AlfHooson, EmlynRobinson, Geoffrey
Bean, R. E.Horam, JohnRoderick, Caerwyn
Beith, A. J.Howell, Rt Hon Denis (B'ham, Sm H)Rodgers, George (Chorley)
Bishop, E. S.Howells, Geraint (Cardigan)Rodgers, Rt Hon William (Stockton)
Blenkinsop, ArthurHoyle, Doug (Nelson)Ross, Stephen (Isle of Wight)
Boardman, H.Huckfield, LesRoss, Rt Hon W. (Kilmarnock)
Booth, Rt Hon AlbertHughes, Rt Hon C. (Anglesey)Rowlands, Ted
Boothroyd, Miss BettyHunter, AdamRyman, John
Bradley, TomIrvine, Rt Hon Sir A. (Edge Hill)Sandelson, Neville
Brown, Hugh D. (Provan)Irving, Rt Hon S. (Dartford)Sheldon, Rt Hon Robert
Brown, Robert C. (Newcastle W)Jackson, Colin (Brighouse)Shore, Rt Hon Peter
Buchanan, RichardJackson, Miss Margaret (Lincoln)Short, Mrs Renée (Wolv NE)
Callaghan, Jim (Middlelon & P)Jay, Rt Hon DouglasSilkin, Rt Hon John (Deptford)
Campbell, IanJohn, BrynmorSilkin, Rt Hon S. C. (Dulwich)
Cant, R. B.Johnson, James (Hull West)Small, William
Carter-Jones, LewisJohnson, Walter (Derby S)Smith, John (N Lanarkshire)
Cartwright, JohnJohnston, Russell (Inverness)Snape, Peter
Castle, Rt Hon BarbaraJones, Alec (Rhondda)Spriggs, Leslie
Cocks, Rt Hon MichaelJones, Barry (East Flint)Stallard, A. W.
Coleman, DonaldKaufman, GeraldSteel, Rt Hon David
Conlan, BernardLamble, DavidStewart, Rt Hon Donald
Corbett, RobinLamborn, HarryStewart, Rt Hon M. (Fulham)
Crawlord, DouglasLestor, Miss Joan (Eton and Slough)Stoddart, David
Crawshaw, RichardLever, Rt Hon HaroldStott, Roger
Crowther, Stan (Rotherham)Lewis, Ron (Carlisle)Strang, Gavin
Cryer, BobLipton, MarcusStrauss, Rt Hon G. R.
Cunningham, G. (Islington S)Lomas, KennethSummerskill, Hon Dr Shirley
Davidson, ArthurLuard, EvanTaylor, Mrs Ann (Bolton W)
Davies, Bryan (Enfield N)Lyons, Edward (Bradford W)Thomas, Jeffrey (Abertillery)
Davies, Denzil (Llanelli)Mabon, Rt Hon Dr J. DicksonThomas, Mike (Newcastle E)
Davis, Clinton (Hackney C)McCartney, HughThompson, George
Deakins, EricMacCormick, lainThorpe, Rt Hon Jeremy (N Devon)
Dean, Paul (N Somerset)McElhone, FrankTierney, Sydney
Dell, Rt Hon EdmundMacFarquhar, RoderickTomney, Frank
Dempsey, JamesMacKenzie, GregorTorney, Tom
Doig, PeterMackintosh, John P.Tuck, Raphael
Douglas-Mann, BruceMcMillan, Tom (Glasgow C)Varley, Rt Hon Eric G.
Dunn, James A.McNamara, KevinWainwright, Edwin (Dearne V)
Dunnett, JackMagee, BryanWalker, Harold (Doncaster)
Eadie, AlexMahon, SimonWalker, Terry (Kingswood)
Ellis, John (Brigg & Scun)Mallalieu, J.P.W.Ward, Michael
English, MichaelMeacher, MichaelWatkins, David
Ennals, DavidMendelson, JohnWeetch, Ken
Evans, Fred (Caerphilly)Millan, Rt Hon BruceWeitzman, David
Evans, Ioan (Aberdare)Mitchell, Austin Vernon (Grimsby)Welsh, Andrew
Ewing, Harry (Stirling)Molloy, WilliamWhite, Frank R. (Bury)
Ewing, Mrs Winifred (Moray)Moonman, EricWhite, James (Pollok)
Faulds, AndrewMorris, Alfred (Wythenshawe)Whitlock, William
Fitch, Alan (Wigan)Morris, Charles R. (Openshaw)Wigley, Dafydd
Foot, Rt Hon MichaelMorris, Rt Hon J. (Aberavon)Willey, Rt Hon Frederick
Ford, BenMoyle, RolandWilliams, Rt Hon Alan (Swansea W)
Fraser, John (Lambeth, N'w'd)Mulley, Rt Hon FrederickWilliams, Alan Lee (Hornch'ch)
Freeson, ReginaldMurray, Rt Hon Ronald KingWilliams, Rt Hon Shirley (Hertford)
Freud, ClementNoble, MikeWilliams, Sir Thomas (Warrington)
George, BruceOakes, GordonWilson, Alexander (Hamilton)
Gilbert, Dr JohnOgden, EricWilson. Gordon (Dundee E)
Ginsburg, DavidO'Halloran, MichaelWoodall, Alec
Golding, JohnOrme, Rt Hon StanleyWoof, Robert
Gourlay, HarryPadley, WalterWrigglesworth, Ian
Graham, TedPalmer, ArthurYoung, David (Bolton E)
Grant, George (Morpeth)Pardoe, John
Grant, John (Islington C)Park, GeorgeTELLERS FOR THE NOES:
Grocott, BrucePavitt, LaurieMr. James Tinn and
Hamilton, James (Bothwell)Pendry, TomMr. Thomas Cox
Harper, JosephPenhaligon, David

Question accordingly negatived.

Photo of Mr John MacGregor Mr John MacGregor , South Norfolk

I beg to move Amendment No. 18, in page 11, line 14, leave out '£6,000' and insert '£9,000'.

Photo of Sir Arthur Irvine Sir Arthur Irvine , Liverpool Edge Hill

With this we may take the following amendments:

No. 33, in page 11, line 14, leave out '£6,000' and insert '£8,000'.

No. 25, in page 11, leave out lines 27 to 36 and insert—

'Part of excess over £9,000Higher rate
The first £2,00040 per cent.
The next £2,00045 per cent.
The next £2,00050 per cent.
The next £2,00060 per cent.
The remainder70 per cent.'
No. 32, in page 11, leave out lines 27 to 36 and insert—
'Part of excess over £8,000Higher rate
The first £2,00040 per cent.
The next £2,00045 per cent.
The next £2,00050 per cent.
The next £2,00055 per cent.
The next £2,00060 per cent.
The next £5,00065 per cent.
The next £5,00070 per cent.
The remainder75 per cent.'.

Photo of Mr John MacGregor Mr John MacGregor , South Norfolk

By way of preliminary I would make two remarks. The first is that I have for long felt that the problem of income tax goes right across all the ranges of income. I wish to make that clear at the outset. In this group of amendments I am not singling one particular group for tax reductions. I believe, and, had I had the opportunity to be called last night, I would have made this point, that this problem covers the whole range, from those on the lowest income scale, where we are all now familiar with the differentials between those in work and those out of work, to those on average earnings in work, to the widows and pensioners and all the scales below the level of income about which we are talking in this amendment.

Looking at differentials I feel that there is now a serious problem for the foreman and supervisor, whom I classify to some extent in the category of management and about whom I shall be talking mainly in this amendment. I have increasingly found that this attitude is taken in my constituency and among every company that I have talked to. I have looked at some alarming figures prepared by companies in my constituency showing that, when we combine the comparative increase in pay that foremen and skilled workers receive and the massive effect of present levels of tax upon it, there is alarmingly little difference between the net take-home pay they receive and that of unskilled workers and people with fewer skills.

Unquestionably this is a serious problem which has still to be tackled. I make this point simply to emphasise to those, Labour Members, who may feel like rebutting this amendment by saying that we are singling out a special category, why I believe this general level of direct taxation exists right across the scale. I hope that we shall continue to make our attack right across the scale. It is not just management which is suffering, but the amendment, nevertheless, pinpoints a major problem which I think it right to identify.

As the Minister of State made clear in his reply to the last amendment, the cost of dealing with this particular group proportionate to total tax relief is very much less than it is for dealing with the other problem to which I have just referred. The reason the amendment is so important is that we are witnessing the start of a great deterioration in the morale of British management. Indeed, I believe that the crisis of morale is already upon us, especially among what one might describe as the cream at all levels.

If we do not remotivate the best of British management at all levels we are sunk. The issue is as serious as that. I hope to show that those who are most at risk are those in management whom we as a country can least afford to lose.

The second preliminary comment I wish to make is by way of commenting on the remarks of those hon. Members who supported the last amendment. Of course, I understand that they have an ideological commitment to an egalitarian society. The two sides of the House of Commons will never agree about that. I would plead with those hon. Members to understand that we as politicians have to be concerned with the practical and real world of business and commerce and, indeed, of the public sector as well.

Most people outside politics—clearly a very large proportion of the British population—simply do not share the political conviction of hon. Members opposite or their ideological commitments. The plain fact, as we have seen in the local election results last week, is that many people are fed up with the constant process of having more of their income taken in tax and spent as politicians wish to spend it. What they are concerned about is doing the best for their companies, making the best use of their skills, getting the rewards which they believe are appropriate for the sacrifices that they have made in their earlier life at the expense of acquiring skills and qualifications, and providing for themselves and their families.

If we do not recognise that fact, we shall demotivate them and we shall also lose the very best among the young, who will simply go abroad because, as the figures clearly show, this country is now taxing them much more heavily than any of our competitor countries. Many young people are free to take their skills to those other countries. In fact, this point was well put last year by the Financial Secretary, who frequently pointed out the way that differentials between the highest paid and the lowest paid in this country, if we take after-tax incomes, are now very much narrower than those in practically every other country, not just our serious industrial competitors, but every other country, including the Communist world. I believe that differentials are far too narrow. The Financial Secretary and I are probably at one in recognising that the real problem is that differentials have now got to their present state.

Amendments Nos. 18 and 25 go together and Nos. 33 and 32 go together. My own view is that we should press Nos. 33 and 32. But the significance of Nos. 18 and 25 is that to some extent they indicate the erosion in tax over the past three years among the group about which I am concerned. I would say to Labour Members that it is not just a question of looking at the past year alone. What one has to look at is the trend of massive inflation over the past three years.

Amendments Nos. 18 and 25, curiously enough, are modest, because they are well below the level at which many of the tax thresholds should be if one simply takes into account erosion in terms of inflation. Starting from the situation in April 1973, the time of the last Conservative Budget, the starting point should be not £9,000 but £9,745. A Treasury answer on 4th April confirmed that. At the 70 per cent. level the starting point should be over £23,000 and not, as in the amendment, £19,000. At the top rate of 83 per cent. rather than £21,000, as in the present Budget the figure should be over £38,000. These figures clearly demonstrate the erosion in net take-home pay of the management group directly caused as a result of inflation.

Equally, the amendments are modest when one looks at the international situation. Of course, this is also relevant with regard to the high level of taxation on the lower paid, but we have to recognise that the lower paid are not likely to be enticed abroad because of their particular skills, whereas management will be. It is relevant to consider the international comparisons.

I simply take two countries, Germany and the United States, to compare with ourselves. Again, according to a Treasury answer on 24th January, our 83 per cent. maximum rate begins at £21,000. In Germany the maximum rate is 56 per cent., starting at an equivalent of £64,000, and in the United States it is 50 per cent., starting at the equivalent of nearly £30,000. Those international comparisons clearly indicate that this group of amendments is very modest.

I come to the reasons why it is necessary to press this case this afternoon. If we have been listening properly to the whole range of our constituents, all of us will know that the problem of the erosion of net take-home pay and living standards of managers, whether they are what one might describe as front line—the foreman and the supervisor—middle managers, or senior managers, is now becoming one of the main areas of complaint. MI of us will know from the statements by the chairmen of many British companies—it is remarkable how this has become a common feature of such statements over the past few years—that more and more boards of directors are having to direct an undue proportion of their time to the problem of how to motivate their managements, how to keep them in this country, how to see that they are adequately rewarded, and how to keep them doing the jobs they are supposed to be doing.

6.0 p.m.

We all know from the many surveys which have been carried out, from the head-hunter surveys and from those dealing with the emigration of British management—and this includes surveys by the Government's own Professional and Executive Recruitment Service—that the group that has suffered most in terms of a reduction of living standards over the last three to four years is middle and senior management. People at the lower and average income levels have begun in the last six to nine months to suffer for the first time a real reduction in their living standards.

But the plain fact is that management, and particularly higher management, has suffered over the last three years a reduction in living standards of about 25 per cent. in real terms. Now a simply staggering increase in gross pay is required to restore these living standards, and one of the major factors which has required this staggering increase is that tax now takes so much of the extra marginal income above £.10,000.

Of all the surveys I have seen on the subject that recently produced by the Opinion Research Centre is the best, and I wish to refer to it. It is the best because it is the most comprehensive and the most scientific. Rather than looking simply at groups of management, such as the British Institute of Management members, as some surveys have done, the ORC survey has looked across a broad range in Great Britain. It started with a sample of 106,000, which enabled it to come down to a group of 1,800 managers, and it studied them in depth.

It discovered that we are talking here about more than 1 million key decision takers in the country. In the debate on the last amendment the Minister quoted the figures of those who would have been brought into the higher tax bands had the adjustment not been made in the Budget proposals. He quoted the enormous increase in the figures of those who over the past three years have been brought into the higher tax bands. So we are talking about a comparatively small proportion of the total population, but about a very large number of people, and they are the key decision takers. They are to be found in the industrial and the commercial sectors and, to be fair, in the public sector.

Let us consider the results of the survey. Those results should seriously concern every hon. Member, because if we are to get the economic growth and performance we seek, we depend on this group of people, and nothing that we as politicians do will make the difference that those people can make if they are properly motivated.

Almost 100,000 managers are serious enough about leaving Britain to have inquired about jobs abroad or about the regulations. More than 500,000 managers would consider taking a job abroad. What is particularly worrying about this aspect is that the majority who are really serious and who may carry out their intentions are among the young.

Those in their 30s and 40s face other difficulties which may prevent their ultimately fulfilling their intentions. I have in mind such factors as children at school. But among the young who do not have these problems the level of desire to seek jobs abroad is truly frightening. I heard today of a company which is being audited by six young chartered accountants aged between 23 and 24. Five of them have said that they are being attracted by offers abroad at this moment. Accountants at that age are among the better paid of our managers, and yet five out of six of this group are seriously considering leaving the country.

I am worried that if they go abroad and see the attractions of the net take-home pay levels and the living standards that they can enjoy there, and if they marry there and have children, it will be extremely difficult with today's tax rates to attract them back to this country.

Photo of Malcolm Rifkind Malcolm Rifkind , Edinburgh Pentlands

My hon. Friend is rightly concentrating on middle management, but does he agree that his arguments apply with equal force to the professions, particularly the medical profession? There we are suffering severe difficulties in persuading the most able members of that profession to remain in this country.

Photo of Mr John MacGregor Mr John MacGregor , South Norfolk

I have been using the word "managers" as a shorthand term, but, of course, we are talking about the middle and higher income groups, and they include the professions. Those are the skills that are so easily translatable abroad, and it is not surprising that we are losing people in that group as well.

A further result of the ORC survey is that about a fifth of the total work force of managers is doing less work outside normal hours than used to be the case. I am sure that the explanation is that pay is no longer a satisfactory reward and that therefore these people are seeking their rewards elsewhere. That means less commitment to the company, to the professional firm, or to the hospital for which they work.

One in four managers—which means well over 250,000—now say that it is not worth accepting promotion because of the effect of taxation on pay increases. I have talked to a number of such people in my constituency and around the country who have given me practical examples of where they have been offered promotion at what looked like an attractive increase in gross salary but where, after taking account of the cost of moving and the net addition to their take-home pay, they discovered that it was not worth while. This has become an increasing problem at home.

There is a strong reluctance, therefore, among these people to accept posts in other parts of the country, even with substantial gross increases in pay. I am sure that many companies could testify to the difficulties they have had in getting mobility among their managers, especially in this country, and in attracting them back from overseas for this very reason.

Photo of Sir John Hall Sir John Hall , Wycombe

Does my hon. Friend agree that in trying to attract executives to another part of the country companies have to give very high salary increases, which distort the salary patterns within companies?

Photo of Mr John MacGregor Mr John MacGregor , South Norfolk

I agree with my hon. Friend. That is also a problem in attracting people back to this country. I am sure that we are all well aware of examples of this. ICI is a substantial example in point. Large numbers of middle managers overseas are being paid so much more in net take-home pay than their senior directors in this country that there is no possibility of attracting them back.

The majority of managers agree that the lack of financial reward is causing them to be less efficient and less enthusiastic in their work. The ORC survey found that dishonesty is on the increase, and that is a factor of the tax levels which greatly worries me. It is particularly disturbing among this group, which has been one of the most law-abiding groups in the community. Nevertheless, it is beginning to be regarded in that group as legitimate to find ways around the tax system simply to protect one's standard of living. I deplore that, but I fear that the fault lies largely with the Government and with us in this House.

A tenth of managers are now moonlighting. Basically, they are spending a great deal of their time doing jobs sometimes for gain, but sometimes at home on a do-it-yourself basis. They are carrying out tasks for which they would previously have employed people but which they now find it more cost-effective to do themselves. They do that work at the expense of the effort they should be making in the export drive and for their companies at home.

The high level of direct tax has caused a concentration of fringe benefits. I dislike too much of a concentration of fringe benefits. I would much prefer to see a higher level of pay associated with lower tax so that people could spend their money as they wished. However, because of our high rates of tax, fringe benefits have become one of the inevitable ways of seeking to keep management working within a company or in the country. Last year's attack on fringe benefits simply made the situation worse.

That is a brief rundown of the main elements in the survey, and it reveals a most disturbing situation. It is clear that the Government's modest improvement, which puts managers back to roughly where they were last year—or perhaps makes them a little better off—is nothing like enough to deal with the rapid rundown in morale.

I readily concede that alterations to income tax are not the only answer. The incomes policy during the last two years, particularly the cut-off point at £8,500, has hit senior management hard. I accept that British management is sometimes not good enough, but we should be rewarding the brightest managers better and keeping them in this country. I fear that we are losing the brightest and that in some instances we are left with those who are content just to coast along. That is not what we require as a country.

Some loss of morale was caused by the majority report of the Bullock Commmittee. It left many managers thinking that they were left out. Many of the Government's interventionist policies have not helped. Tax has made a big difference and the higher that one is up the incomes scale, the worse one's situation is. I am concerned not just about the rapid loss of morale among management but that the brightest and best of management, many of them young people, will go abroad and that many senior managers at home will make less effort.

It is clear from the survey that I mentioned that the better qualified are more likely to go abroad. Those higher up the scale with more responsibility are more likely to be better. The situation has become much worse during the last two or three years.

Tax measures of the kind proposed in this amendment will help. It is therefore right that we should put these amendments forward in order to draw attention to the problem and to urge upon the Government that what they have done is a start on the right road, but that it does not go anywhere like far enough.

Photo of Mr Geoffrey Howe Mr Geoffrey Howe , East Surrey

I rise to support my hon. Friend the Member for Norfolk, South (Mr. MacGregor) in moving Amendment No. 18 and, like him, to invite my hon. Friends to vote in support of Amendment No. 33.

The Committee cannot be too often or too forcefully reminded of the gross damage that has been done to the country and to our economy by the cripplingly high rates of tax imposed upon earned income. I endorse every word that my hon. Friend the Member for Norfolk, South said, particularly his argument that this is true of tax on earnings at all levels. However, in this debate we are concerned with those who pay tax at above the standard rate.

The rates themselves are much too high, and there is a far too low starting point for the higher rates. This has given rise to what my hon. Friend the Member for Guildford (Mr. Howell) rightly described as a management catastrophe—a catastrophe for all management groups in this country I include in those groups all those who have skills and qualifications in professions, technology, and so on. I dare say that the Minister appreciates that this pattern of taxation is really economic nonsense. There is no economic justification for it whatsoever. It reduces the nation's talents and wealth as well as the nation's capacity to create jobs. It even reduces the yield from income tax, so that there is less money available for social spending—if that is what one wishes to do with the money.

John Methven, the Director General of the CBI, was not exaggerating when he said some months ago that we are threatening to turn our country into a managerial leper colony. It will be a leper colony not just for managers but for all people with all kinds of skills because we have turned our island into an island of fiscal insanity by maintaining, notwithstanding inflation, these increasingly severe rates of direct taxation.

The amendments that we are now discussing do not go far enough to restore the position that existed in 1973. They would not remedy the damage that has been done by inflation in imposing on these people tax increases that Parliament has not authorised but that have been increased by the stealthy process of inflation. I am not saying that, in the context of this Budget, we should make these precise reliefs but that we should vote for the amendment in order to underline the urgent importance of making much more substantial progress in lightening the tax burden even more than the Government have already started to do.

6.15 p.m.

The sensible target for a top rate of tax on earned income should not exceed 60p in the pound at any level. Even that would be above the top rate applicable in the United States, France and Germany where there are also much higher starting points for the higher tax rates.

Since the oil crisis and the world recession sacrifices have been necessary, but the discriminatory way in which sacrifices have been inflicted on people vital in our economy has caused an intolerable amount of damage. No doubt the House will recall the figures that were quoted by Kenneth Bond of GEC in a letter to The Times last year when he pointed that between 1972 and 1976 a tremendous erosion had taken place in living standards. There has been at least a 10 per cent. reduction in take-home pay for skilled manual workers, 20 per cent. for managers; and for group managing directors the figure was 30 per cent.

We were told in the debate last year that the differential in earnings between manual workers and senior management had shrunk from 8 to 1 to 4 to 1 and it is now narrower than it is in the most non-egalitarian and capitalist of countries such as the Soviet Union and China. This will continue to have a grave effect on the morale of these key people, on their mobility within the country from job to job, and on their job motivation. The effect is, of course, also being expressed in the growing interest in emigration from this country.

My hon. Friend the Member for Norfolk, South cited some examples that were given in a report by the Opinion Research Centre. In order to supplement that information I refer the Committee to similar evidence produced by an inquiry conducted by the Overseas Recruitment Service and published in March 1977. It had questioned 991 people who had applied for appointments overseas in engineering, and in secretarial and medical work, as well as for jobs requiring other qualifications. It showed particularly disturbing features about the attitudes of the young. Among those aged between 31 and 50, whom the report described as being the bulk of people who were "trained, qualified and experienced", the second most important factor for wanting to leave the country was the present United Kingdom taxation system. The most important factor was the prospect of a higher salary abroad. Some 68 per cent. of those questioned put that first. We can do little about that while we are less well off than those in other European economies, but to add to that the double handicap of penal taxation is totally absurd.

The report said that the people wishing to work abroad have already reached a certain level of responsibility, have plenty of working years ahead of them in which to deploy their working talent and experience". These people are in the prime of life and have a lot to offer the country. They are people the country can ill afford to lo without.

The proportion of those complaining about the tax system, according to the survey, rose in line with income. Among those earning more than £10,000 a year, 80 per cent. gave taxation as their main reason for wanting to leave the country. That is reflected in the emigration figures. More than three-quarters of those emigrating are less than 45 years old. If one studies the pattern of those going to Australia one finds that in 1970 about 40 per cent. of them were highly skilled or professional people. In 1975 the proportion was 64 per cent. Although the numbers may not be increasing greatly, the proportion of those with skills, people we can ill afford to lose, is rising steadily.

It is this pattern of taxation that has led to some of the nonsense contained in the Bill. There is provision in Schedule 7—a schedule four pages long—to give a series of licensed loopholes for those who are lucky enough to have overseas earnings. It is full of jargon about the qualifying tests, and the newspapers have been full of comment about whether one qualifies for relief if one leaves the country before or after midnight, whether one has one's toothbrush and leaves for more than two days at a time. Just think of all the travellers in business outside this country who will be thinking at least as much about whether they can get through the loopholes designed by Treasury Ministers as about what they should be doing for their companies. This is another ridiculous consequence of our absurd rates of taxation.

We also have to consider the whole jungle of benefits in kind that have been growing as a means of escaping from high taxation. They give an interesting sideline to what is happening, because next year the P.11.D starting point for taxation of benefits in kind goes up from £5,000 to £7,500, which is just keeping ahead of the level of average earnings. That provides us with another absurd illustration.

We should be wrong to ignore what is happening to those undertaking deep-sea diving in the North Sea. Many hon. Members will have read reports that the men who undertake this hazardous work rightly receive substantial rewards, but that they are being pursued in order to have their tax status changed—to be transformed from self-employed people liable to tax under Schedule D so as to be brought within the net of taxation under Schedule E. It would not be right for me to comment on the tax status of any individual, but the reaction of these men to the imposition of the full, unqualified burden of our tax rates is one of great hostility, and they are indicating that they are likely to cease residing here for tax purposes and to cease to be available for this dangerous work. This is one of the consequences of pursuing to the limit a tax system with rates as high as they are.

In one report I have received from one of the larger diving contractor companies, it is said that they will shift their British divers to locations outside the United Kingdom and will replace them with foreign nationals. They foresee considerable difficulty in obtaining and retaining deep-sea expertise in British waters because of the imposition of these tax rates. According to the report the net result would seem to be a downgrading of available expertise and an influx of foreign nationals to do much of the work which could and should be done by British divers. It follows that the Inland Revenue stands to lose thereby considerable sums in tax revenue anyway Why in heaven's name has this country been driven into this absurd and lunatic position? It is because the hair-shirt hermits of the Tribune Group, who were here earlier, have had great success in peddling political myths to the great destruction of the economic health of this country. There are so many illusions and myths that it is worth spending a moment or two in identifying and destroying them.

Photo of Mr Denzil Davies Mr Denzil Davies , Llanelli

The amendment will cost about £435 million. Can the right hon. and learned Gentleman tell us where he is going to get this money?

Photo of Mr Geoffrey Howe Mr Geoffrey Howe , East Surrey

The amendment is being proposed in the context of the case that we have argued many times, namely, that our tax system needs to shift away from direct to indirect taxation. Our case has been that the Government have recklessly and irresponsibly moved away from a 10 per cent. rate of VAT. If they returned to that they would get an extra £700 million. This is the folly. The Government must understand that they have cast away £700 million in revenue that would have been raised by a 10 per cent. rate of VAT. Instead, they have locked themselves into a straitjacket and are attempting to justify a burden of direct taxation which is intolerable, lunatic and mad. They know where they could have got the resources. We are still paying the price for the profligate promises made by the Chancellor of the Exchequer in order to buy votes in October 1974. The sooner Ministers learn that, the better.

I return to the myths and illusions. The first concerns the impact of inflation on our tax system. In 1967, 55 people working for ICI were receiving salaries of more than £10,000 a year. In 1975, the figure was 1,377. On the face of it, the rich in ICI had multiplied twentyfold. The reality is that in 1975 only two people at ICI had take-home pay as large as that which they had received in 1967. Despite the multiplication of inflationary, illusionary salaries, the great mass of these people were worse off.

Another myth being propagated by the Left—[HON. MEMBERS "Where are they?"] They are drying and cleaning their hair shirts ready for the next foray.

Photo of Hon. Nicholas Ridley Hon. Nicholas Ridley , Cirencester and Tewkesbury

One of them has left his shirt behind.

Photo of Mr Geoffrey Howe Mr Geoffrey Howe , East Surrey

I hope that it does not find its way on to the back of a Treasury Minister. Treasury Ministers are sufficiently austere. My hon. Friend the Member for Cirencester and Tewkesbury (Mr. Ridley) is right to cross the Chamber to investigate what has been left behind. It may be a sleeping member of the Tribune Group.

The second illusion is the gross pay illusion in which hon. Members opposite below the Gangway talk about salaries of £10,000 and £15,000 a year. They are totally misleading people about the level of rewards being paid. At last year's tax rates a salary of £10,000 a year is worth £6,600, or £120 net a week, which is not far above the level of average earnings.

The third myth is that we live in some sort of closed economy or a siege economy in which we can insulate our-selves from those places around the world to which our people can emigrate. I do not know where members of the Tribune Group live or move, but I find it almost impossible to go to any significant employing organisation without receiving complaints about the departure of two or three key men to much higher paid jobs outside this country.

The fourth illusion propagated by the Tribune Group comes when they say that they may be persuaded by our arguments but that they can carry on in the short run because they will be able to put things right in a different way in the long run. By then, however, the people to whom I am referring will all have fled.

The fifth illusion, and one which has been propagated by the Chancellor of the Exchequer from time to time, is that chaps do not work for take-home pay, that they are motivated by massive job satisfaction—such as, presumably, the pleasures of carrying dispatch boxes from one IMF conference to another or of waving to the cameras outside No. 11 Downing Street. That is an odd argument from Ministers who have been noticeably successful in material terms. I am sure that the Chancellor must get some pleasure from his farmstead in Sussex, his homestead in Highgate, his occupation of No. 11, the car, the chauffeur and the rest. Even for so altruistic a character, material considerations must have played some part in motivating him. Material rewards matter in a free society. Even in an unfree society on the other side of the Iron Curtain material rewards are not conspicuous by their absence.

6.30 p.m.

The sixth illusion is that higher rewards are of only little consequence to those who receive them. These people who deserve to face lower taxes and to receive better net take-home pay are the minority who play the key part in creating wealth for the rest of the community. To persist in these policies without change is to drive them away, to the great disadvantage of this country.

All these things flow from the extent to which Labour Members have enforced upon conventional wisdom in this country the belief that equality is something to be pursued for its own sake. If we continue to pursue equality in this way we shall not merely be perpetuating the management catastrophe about which my hon. Friend spoke. We shall be endorsing a prescription for the pauperisation of our country. That is why I support the amendment.

Photo of Mr Nicholas Budgen Mr Nicholas Budgen , Wolverhampton South West

I hope I shall be forgiven, Sir Myer, if I take the peroration of my right hon. and learned Friend the Member for Surrey, East (Sir G. Howe) a little further, because I think that he and my hon. Friend the Member for Norfolk, South (Mr. MacGregor) relied most of all upon what I call the efficiency argument. They relied upon the argument that the many worthy people who earn high salaries work primarily. or at least partly, for money, and that if we do not give them adequate net incomes they are thereby frustrated in their objectives, they work less hard, they tend to emigrate, they tend to look at ways in which they can preserve their real position by tax dodges, and all the rest.

It is a good argument and one with which I agree, but the argument surely goes much wider than that. There is a danger about that argument because it accepts the premise of the Puritans on the Labour Benches. It suggests that those who are rich are also worthy, and surely that is a dangerous fallacy.

The reasons for people being rich are diverse. They are dependent upon the chances of the market. They are in some instances dependent upon persons having odd and particular skills, quite unconnected with the moral worth of their character, or they may equally be wealthy because of the oddity of the chances of having been born to rich parents or having inherited vast wealth.

All of these are a necessary part of a diverse and free society, but if we say that everybody who is rich is worthy the Puritans on the Labour Benches are perfectly entitled to say "Look at that manager earning £12,000 a year. He is having a very pleasant way of life. Of course he has to take some difficult decisions, but for my part"—as the man on the shop floor might say—"I would much rather be jetting around the world for 12 grand a year than working at my lathe and doing a boring, repetitive job". If we counter that argument by saying that the manager is in some way morally better and taking a more responsible rôle in society, surely we are only storing up for ourselves a spirit of envy from the Labour Benches.

We say, do we not, that it is from the chances of the market, the oddities of life, that some people are richer than others? It does not mean that they are any better. It does not necessarily mean that they are intellectually any abler. They are merely richer, and their riches are a necessary part of a free and diverse society in which people are capable of taking independent action and of taking independent points of view. If we say that, we are surely making it more bearable for others who have not the good fortune to be so benefited in the odd and changing society in which we live.

I say, therefore, that we support the amendment not just for the managers, who may be very worthy, and not just for those who work very hard, although I dare say they do not work any harder than people who spend their time cleaning out lavatories all day. We say that rich people are a necessary part of society. It matters not how they got their riches or how they retain their riches. We need rich people in order that we may have an independent and diverse society. We on the Conservative Benches support the concept of independent private property.

Photo of Mr John Wakeham Mr John Wakeham , Maldon

I should like to think that this Budget and this Finance Bill mark a watershed in the Socialist way of life that we have had in this country for a number of years. I should like to think that they mark a great change in direction. We hope that it will be the last Socialist Budget for a good many years, but it is important to remember in this context that we have had a Socialist Government for 10 out of the last 13 years. These amendments are designed to help the welcome change of direction to move considerably further in the light of the damage which has been done to our tax system during the period since 1964.

I do not think we fully realise what a social revolution has occurred in this country as a result of the changes in the tax system made by the two Labour Governments in the period from 1964 to 1970 and from 1974 to 1977.

When the Labour Government were returned in 1964, a person on average earnings retained some 90 per cent. of his take-home pay after direct taxation and national insurance contributions. Such a person now retains some 75 percent. —a reduction of 15 per cent. For a person on five times average earnings, the respective figures are 73 per cent. in 1964 and under 50 per cent. now—a reduction of about 23 per cent. For a person on 10 times average earnings, the proportion left after payment of tax and national insurance has dropped from 62 per cent. to 34 per cent.

Looking at those figures in another way, comparing the net after-tax income in 1964 with the present time and comparing a person on average earnings with a person on 10 times average earnings, the differential was seven times in 1974 and it is now four times. As my right hon. and learned Friend the member for Surrey, East (Sir G. Howe) said, that is very much the sort of after-tax differential that may be seen in many countries in the world, particularly a number of those behind the Iron Curtain.

There has, therefore, been a very substantial switch in resources as a result of having a Labour Government in this country over a long period. I do not believe that Labour Members below the Gangway should be dissatisfied with the ravages which the Labour Government have wrought with our system of direct taxation.

Taking the period of about four years since the last Conservative Budget, there has been an increase in retail prices of some 70 per cent., and it is interesting to look at the increase in indirect taxes. Taxes on expenditure have gone up broadly by about the same figure. The increase in rates has been broadly around the 70 per cent. mark. National insurance contributions have increased by perhaps a bit less—about 65 per cent. But the increase in direct taxation has been about 130 per cent.

I believe, therefore, that the very modest change in direction which has been forced upon the Government by events ought to be looked at in the context of a series of Governments who have shifted taxation very substantially indeed away from indirect to direct taxation, and last year's effort is a very uncharacteristic example of what Labour Governments have been doing to this country over a considerable number of years. They have managed to do what they have done only by reason of high inflation coupled with high taxation. Without high inflation, no Chancellor of the Exchequer could have got away with the social revolution brought about by the present Socialist Government. Inflation has been the ally of the Socialist endeavour to impose high direct taxation.

I support these amendments because they go some way to encourage the change which we have seen in this Budget—the first change in a long time. I hope that the amendments will be agreed to.

Photo of Mr Peter Walker Mr Peter Walker , Worcester

In fairness to the Chancellor of the Exchequer, one must point out that he recognises the problem which has been outlined in this debate. He recognises it every year in the period between September and January and he forgets it every year in the period between March and April.

This was the second major Budget prior to which the Chancellor made many promises that those who had been particularly hard hit in middle management and in higher management would be thought of in the preparation of his Budget plans. It is a great technique adopted by the present Chancellor that for many months of the year he keeps people content and happy on false promises and raises hopes that are never fulfilled. In that sphere he has been almost more disastrous than he has been in a good many other spheres which compete for that accolade.

For three years, middle management and higher management groups in British industry have been hard hit by a combination of the Chancellor's policies. The incomes policy operated by the Government in the last two years has been harder and tougher on that group of people than on anybody else. They have suffered a combination of tough policies and a complete freeze on their incomes, and they have also suffered because of levels of tax and the effect on mortgage interest rates. Therefore, there is a whole band of highly important people in society whose standards of living have dropped constantly for three years—probably in total by as much as one-third. No group of people can go through the process of adjusting themselves to such a drop in their standards of living without suffering immense difficulty and anxiety.

I wish to underline two points in asking the Government to consider this amendment carefully. The first is that, in the Government's endeavours to obtain a successful phase 3 in terms of income policy, one of the great problems in Britain is that the whole of British management is in a mood in which it would like to see the end of incomes policy, if only for a few months, so that it could obtain the adjustment which it has lost over the past three years. The fact that management is in that mood at present is not helpful to the Government.

Although many recognise the necessity for the Government to be successful in obtaining some form of wage restraint because of the incomes policy which is operated against them—a feeling of unfairness compared with the rest of the country—this, in combination with tax levels, leads them to believe that they have lost out in this particular phase.

6.45 p.m.

Secondly, the Government must recognise the effect which their policy has had on services for which they are directly responsible. In this context, no section has been harder hit than the National Health Service. As a result, a whole body of our most skilled surgeons are developing a nine-till-five working mentality, having been frustrated by years of lack of recognition of their talents, skills and efforts. This has led in the last two or three years to a massive increase in waiting lists at almost every hospital to see consultants. This is directly related to the manner in which these men of great skill have been treated.

Another factor, which the Government may try to brush aside, is the perpetual argument of the pay trend. I warn the Government that if they ignore the trends of the past few years—and the lack of reward to a fair number of people is the barometer by which one can judge future trends—they will be in for a nasty surprise. Many management recruiting agencies in Europe find that the one place in which they can recruit talent easily is Great Britain. They are making a greater attempt to recruit people from this country than ever before.

Let me try to point out what is likely to happen in the next five or 10 years in terms of some of the new emerging economies such as Iran, Venezuela and Brazil. All have immense wealth and considerable plans for industrial development but a total lack of managerial ability.

All those Governments have decided that they need to recruit on a large scale. A recent governmental commission in Venezuela has recommended that in the next five years it should try to recruit from abroad between 250,000 and 500,000 skilled and managerial personnel to assist in development plans. If those Governments are looking for countries in which to recruit that talent, Britain is the obvious target. Britain has the men with ability, skill and great managerial background, but it also has a Government who clobber such people with high taxes. That makes it easier for them to recruit in Britain than to recruit in Germany, France, the United States or any other major industrial country.

I hope that the Government will not brush this amendment aside and replace it with yet further promises to consider the lot of middle and higher management in the months to come. Before the 1976 Budget the Chancellor of the Exchequer, in speech after speech to employers' organisations and groups of managers, said how much he felt for their problems and said that he intended to recognise them. In the following Budget he did nothing for them. He took the same course in the months before the present Budget. Again, he has done virtually nothing. If this goes on much longer, this Government may experience the fact that such men will fail to pursue their occupations with the energy which the country so desperately needs.

Photo of Malcolm Rifkind Malcolm Rifkind , Edinburgh Pentlands

It is astonishing that when the Committee is considering a major amendment to this central piece of legislation the Benches behind the Treasury Minister are occupied by only one reclining Member and one equally reclining garment. It is not surprising that support for the Government in the House is comparable with the support given to the Budget by the country and the electorate.

I wish to make two short points in support of the amendment. My hon. Friend the Member for Norfolk, South (Mr. MacGregor) sought to deal with the problems of middle management and the crisis facing industry. I do not dissent from his remarks, but I wish to emphasise that it is not only middle management or industry which is suffering from the present high level of taxation. There are a number of other people and groups within the community whose support and continued presence in this country are necessary for our general well-being. I refer to the professions, and particularly to the medical profession. Those professions have in the last few years suffered a severe drain of sorely needed talent to other countries, for exactly the same reasons as apply to industry.

Similar considerations apply to those with literary, artistic and other scarce talents. In some respects those products may not be admired by everybody, but the wealth of the country depends on our being able to retain people with talent. They are the creative groups, the professional men and the entrepreneurs, and they all share something in common—namely, the possession of scarce skills.

I wish slightly to disagree with my hon. Friend the Member for Wolverhampton, South-West (Mr. Budgen), who suggested that in some way the possession of a higher income is something arbitrary and is either never or rarely related to the ability of those in the group who receive it. I believe that to a large extent high income in all countries, whether capitalist or Socialist, goes to those with rare skills, and it is those people whom the community most particularly needs.

I also warn the Government that this country faces the threat of the emigration of our skilled minority to a far greater extent than the rest of Europe could suffer even if its taxation were similarly severe. We have both the advantage and the disadvantage of speaking an international language. Therefore, disaffected members of our community can contemplate starting a new career and a new life in many other countries in the rest of the world far more easily than those belonging to a community whose native language is spoken only in their own country. It is easy for someone in this country suffering from the effects of taxation to consider starting a new career in the United States, Canada, Australia, New Zealand, South Africa or many of the other countries where English is the common language.

The language problem can often dissuade a person from emigrating when all the other factors in his life might encourage him in the other direction. Even if Germany, France, Italy, Spain or Greece had serious taxation problems or its own difficulties, this extra factor might keep some of its skilled people at home despite the other factors which might persuade them to go elsewhere. I hope that the Minister will take into account that, because it is relatively easy for the skilled members of our community to begin a new career and a new life in other English-speaking countries, we must make special efforts to persuade them to remain here.

In sonic respects the Government are gradually seeing the light, and there is now an element of common sense in their whole attitude towards taxation. Four or five years ago it would have been impossible to envisage a Socialist Government offering income tax incentives to the trade union movement in order to secure co-operation over a prices and incomes policy. Four or five years ago the current orthodoxy was that direct taxation was a privilege that the middle classes and the higher income groups were supposed to enjoy in order to benefit the rest of the community. Now even the present pig-headed Government are realising that high direct taxation leads to suffering and hardship in the community as a whole. If it has taken an economic blizzard to bring them to their senses on this matter, there is at least a hope that the problems faced by other income groups will lead the Government to see similar common sense in regard to them in the not-too-distant future.

The problem is that we cannot afford to wait for that to come about simply by a process of slow infusion of intelligence into the minds of those on the Treasury Bench. I remind the Minister that although the seriousness of the problem is now emphasised by the difficulties in industry, it is in the professions and creative groups, those engaged in literary and other creativity, that we are losing out to many other countries in a way that no community can afford for long. I hope that the Government will take that into account. If we cannot restore the level of allowances and the tax position of those groups to what they were a mere three years ago, at least we can do significantly better than was proposed in the Budget.

Photo of Sir Albert Costain Sir Albert Costain , Folkestone and Hythe

Most of the arguments I had intended to advance have already been put, so I shall be brief.

I can confirm from my own business experience that there is a drain of brains from this country and that it is having a serious effect. Does the Minister not realise that if we drive away the income group with which we are here concerned there will be a tremendous effect on employment? If the people with pleasant gardens and a standard of life which reflects well on this country, people who already have heavy commitments, are not allowed to have a reasonable spendable income, we shall create a country which has no quality products, and the standard of our shops will go down. The people in that group, such as the women who spend more on their dresses and thus give employment to specialist firms, have an important effect on employment. If we are to continue as a country of which we can be proud, it is a group that needs to be encouraged.

Photo of Mr John Pardoe Mr John Pardoe , North Cornwall

I find myself in complete agreement with almost everything that has been said in the debate so far. These high rates of tax are ridiculous both in absolute terms and by international comparison.

I do not share the anti-egalitarian views expressed by the right hon. and learned Member for Surrey, East (Sir G. Howe). I believe in greater equality, and I do not think that our low-income groups are yet over-privileged, but I challenge the view held by many on the Labour Benches that income tax is an egalitarian tax. To a large extent it has worked the other way and is not a very efficient redistributor of income.

That was pointed out many years ago by, I think, Professer Titmuss in a book in which he said that, although the Inland Revenue's figures tended to convince everybody that income tax had been a redistributor of income, there was in fact so large an incentive to reduce the taxable income at those higher levels by all manner of allowances and non-taxable benefits that the Inland Revenue grossly overstated its redistributive effects. That argument certainly convinced me then, 15 or 20 years ago, and if it was true then it must be even more true today.

Income tax is too high because it is too high a proportion of our total tax burden. It has been said in the debates yesterday and today that we do not suffer from being a high-tax country, if we take the total of our tax revenue as a proportion of our gross national product. That is certainly true. The problem with all rates of income tax is that we are bedevilled by the fact that we have allowed ourselves to take far too great a share of the total tax revenue in income tax because it is too darned easy to do.

Inflation does it for Governments without Parliament having to vote it. Therefore, general indexation of the allowances and the bands is a principle which the Committee must at some time come to accept, although I certainly agree with the right hon. and learned Gentleman about the need to raise the bands to the levels at which they were, in line with the rise in the cost of living, the fall in the value of money. I hope that this will become part of a general principle of indexation accepted by the Conservative Party.

The fact that income tax is too high, and at these levels of tax much too high, is now generally accepted in the Committee, though not universally, as we saw in the previous debate. It is fairly generally accepted among all shades of political opinion. As we have seen from speeches by the Chancellor, the Chief Secretary and other Ministers, including the Prime Minister, it is certainly accepted by them.

This year's Budget is a step in the direction of reducing the high dependence on income tax, but we cannot change the burden of income tax in isolation. We must do it as part of a gradual—I hope not too gradual—plan to change from taxes on incomes to taxes on expenditure. People tend to think that one is advocating increasing VAT to an extraordinary rate when one suggests a change to taxes on expenditure, but there are many taxes on expenditure.

The most important deficiency in our tax system at present in terms of its revenue yield is the corporate sector. The British corporate sector, both nationalised and private, is contributing a much lower proportion of the total tax burden than is the corporate sector in nearly all our industrial competitor countries. There is not much that we can do about that through corporation tax, because profits are so low. Therefore, corporation tax looks high, at 52 per cent., but in real terms it is no higher than in all other countries. In a number of Western industrial countries corporation tax is a higher burden on industry generally.

Photo of Mr Peter Hordern Mr Peter Hordern , Horsham and Crawley

I do not believe that the hon. Gentleman is correct in saying that profits are low. That is not the case with companies. The position is that investment allowances are exceedingly generous. Is the hon. Gentleman suggesting on behalf of the Liberal Party that they should not be as generous as they now are?

7.0 p.m.

Photo of Mr John Pardoe Mr John Pardoe , North Cornwall

Yes. I am indeed. I share the views of many Conservative Members who question the relevance of investment allowances in terms of creating investment. I do not believe that any Government have succeeded in bribing business men to invest more through investment allowances.

One interesting document to emerge from the Government in recent years is a large blue tome, which was the result of a seminar organised by the economics adviser to the Department of Industry, Professor Alan Peacock. It is an assemblage of learned papers on the effect of various investment incentives. The conclusion of each of the papers is that the experts do not have the foggiest idea of what the incentives are doing to investment.

The hon. Member for Horsham and Crawley (Mr. Hordern) has put his finger on a point that I wanted to make and which constitutes the crux of the problem. We in this country, in both corporation and income tax terms, have high tax rates and high allowances. The rates look ridiculously large. In some cases they are ridiculous. However, they look even more ridiculous than they are because of the high allowances. That is true of the 52 per cent. corporation tax. Because there are large investment allowances, the yield is low. I deal with these other taxes only because I believe that we must consider ways of reducing income tax, especially at the upper levels, in the context of how we raise revenue from other sources.

Photo of Sir John Hall Sir John Hall , Wycombe

Does the hon. Gentleman agree that, if we are looking for a way of switching the burden of tax more on to corporations, the tax on corporations is on profits which in real terms often do not exist? Therefore, the Government are getting revenue out of the assets of a company, not out of its pocket.

Photo of Mr John Pardoe Mr John Pardoe , North Cornwall

I entirely agree with the hon. Gentleman. Over the years some company chairmen, until they got wise to it, were making themselves look ludicrous by getting up at annual general meetings and announcing the splendid profits which had been made when they had not been made at all looked at in real terms. The real return in British industry is catastrophically low—about 3½ per cent. last year. It is difficult to say now what it is, because profits are beginning to rise.

Taxable income in Britain in 1976–77 was £48·7 billion. That is the total tax base for personal income. Allowances and deductions amounted to £33·1 billion. I wonder whether it is sensible to have a tax system which relies so much on high rates of tax which people often quote, certainly in the international context. These rates are not real in any meaningful sense because so many allowances are set against them.

The reduction of these tax rates is desirable. Indeed, I sometimes think that it might be better to have none at all. I should dearly love to abolish income tax if we could find a better tax for it. The graduated expenditure tax advocated by the Meade Commission is a step in that direction. The Meade Commission pointed out that income tax is a tax not solely on income, but on income less certain types of savings. It would be better to say that it is a tax on income less all types of savings rather than to try to distort the market in favour of institutionalised savings.

Photo of Mr John MacGregor Mr John MacGregor , South Norfolk

I accept the point made by the hon. Gentleman that there are allowances, though they are not as generous as he makes out, and many international comparisons take them into account. But does he agree that, because the higher rates or tax bands are so narrow, there is a massive disincentive at these income levels irrespective of allowances?

Photo of Mr John Pardoe Mr John Pardoe , North Cornwall

I agree entirely with the hon. Gentleman.

Photo of Mr Myer Galpern Mr Myer Galpern , Glasgow Shettleston

Order. The hon. Member for Cornwall, North (Mr. Pardoe) has digressed considerably from the substance of the amendment. However, if he is about to discuss the abolition of income tax, I should remind him that it is not part of the Jubilee celebrations.

Photo of Mr John Pardoe Mr John Pardoe , North Cornwall

No, Sir Myer, I was not about to debate the abolition of income tax. I was making the point that all personal taxes, not just these upper rates, are too high.

I agree with the hon. Member for Norfolk, South (Mr. MacGregor) that the bands are now so narrow that there is a substantial disincentive at that level. Indeed, there is a disincentive throughout the income tax scale. Yesterday there was reference to low levels of tax and the poverty trap. The disincentive is even greater at that level.

Whatever economic and utilitarian arguments we advance for a reduction in the top rates of tax, regrettably we are politicians. The amendment calls for substantial increases this year in net take-home pay for a small, though important, section of the community. We are talking about a married couple with two children and an income of £8,000 or more a year. Indeed, the amendment would put it up to about £10,000 a year or more. We are proposing considerable increases in net take-home pay for such people. Frankly, I do not believe that we could get away with that. We must take account of the feelings of the British people, who are not in a mood at the moment to accept that such increases should be made.

Photo of Sir John Hall Sir John Hall , Wycombe

I cannot understand how the hon. Gentleman can advance this argument when he has tabled an amendment which would have the effect that no one should pay more than 50 per cent. of his income in tax, and that could benefit only those earning about £30,000 or more a year.

Photo of Mr John Pardoe Mr John Pardoe , North Cornwall

Indeed. With the permission of the Chair, which I sought from your predecessor, Sir Myer, I was going to discuss a small aspect of the amendment.

I was about to say that the best start this year would be a fairly modest proposal which would at least announce that we are not the most grotesquely overtaxed nation in the world. An amendment—for example, Amendment No. 24—stipulating that no one should pay more than 50 per cent. of his income in tax would affect a small number of people and would cost very little. I do not think that the Treasury knows how much it would cost, because it is a difficult calculation to make. I suspect that such a proposal would affect very few people in this country. We are talking about people with incomes well over £20,000 a year. However, they are bound to have allowances which are not normally taken into account—for example, various pension arrangements and so on.

It is absolute nonsense for anyone in a civilised, efficient, competent country to be asked to pay more than 50 per cent. of his earned income in tax to the Government. The fact that such a proposal applies only to a small number of people means that we could dispense with the fiction of being branded throughout the world as a country with high tax rates. It is well known that high tax rates have an effect on management selection, about which the right hon. and learned Member for Surrey, East was talking. People, wherever they are, tend to regard Britain as a grotesquely and extravagantly high tax country. Britain is a fairly high tax country in terms of income tax, but the rates are not all that high. We might as well carry the amendment as a start in the process of announcing to the world that we intend to put our house in order.

I hope that over the next few years it will be possible to bring sanity into the tax system, to reduce the burden of income tax both absolutely and as a proportion of the total revenue received by the Government and, through an overall reform of the tax system, to make it politically possible to reduce the upper rates of tax. However, as I shall argue later on investment tax, if I catch your eye, Sir Meyer, I believe that the quid pro quo for that is a heavy wealth tax. I do not believe that my constituents or the great majority of people in this country would accept a reduction in these high rates of tax without a quid pro quo.

Photo of Mr Ian Gow Mr Ian Gow , Eastbourne

We have heard a rather typical speech from the deputy leader of the Liberal Party.

Photo of Mr John Pardoe Mr John Pardoe , North Cornwall

I am not deputy leader We do not have one.

Photo of Mr Ian Gow Mr Ian Gow , Eastbourne

The hon. Member for Cornwall, North (Mr. Pardoe) is perhaps the loss-leader of the Liberal Party.

He began by saying that he did not share the anti-egalitarian views of my right hon. and learned Friend the Member for Surrey, East (Sir G. Howe). He went on to say that he was a warm supporter of the principles behind the amendment. Later he was compelled to admit that he had drafted Amendment No. 24. The argument that he used to justify the principle behind that amendment was that it would not cost the Treasury very much money to exempt from tax half of what a man had in his earnings. He argued a moment ago that it would be politically impossible to have a substantial reduction in earned income tax. As usual the hon. Member is trying to have his argument both ways. He ended up in great confusion when he told us that he was a keen advocate of a massive wealth tax. We shall see how far he can impress his views on the Government and whether we shall have a massive wealth tax in the next Budget

Photo of Mr John Pardoe Mr John Pardoe , North Cornwall

I have pushed my views on to the Tory Party. The majority of Members of the Select Committee investigating a wealth tax supported my proposals.

Photo of Mr Ian Gow Mr Ian Gow , Eastbourne

The hon. Member is gravely misleading the House. My hon. Friend the Member for Blaby (Mr. Lawson) and I were members of that Committee.

Photo of Sir John Hall Sir John Hall , Wycombe

We already have a wealth tax in the capital gains tax.

Photo of Mr Ian Gow Mr Ian Gow , Eastbourne

We have an even bigger wealth tax in the form of inflation.

The hon. Member for Cornwall, North referred to a book by Professor Titmuss. It would be better if he read the book written by my right hon. Friend, "The Ascent of Britain". Perhaps a copy could be presented to the spokesman of the Liberal Party.

One of the strange features of our time is that just before Christmas each year the Chancellor of the Exchequer composes a letter. It is addressed to the Managing Director of the International Monetary Fund. In some ways it is a model letter. My only criticism of the copy which the Chancellor of the Exchequer places in the Library is that we are not let into the secret of the greeting at the beginning and the salutation at the end. That is written in manuscript. Last year it was sent on 15th December. The relevant paragraph is paragraph 12. It highlights precisely the amendment moved by my right hon. Friend.

Paragraph 12 finishes with a reference to the need to reduce the burden of taxation. It begins with another important Socialist measure. The paragraph states: As a result of … a sale during 1977–78 of British Petroleum shares calculated to yield £500 million, the aim is to hold the PSBR at £8·7 billion in that year. The hon. Member for Cornwall, North said that there were only two ingredients in the measures that we are discussing to reduce the burden of direct taxation—namely, what proportion of revenue should be raised by direct taxation and what proportion by indirect taxation. There is another crucial ingredient that the hon. Member left out. What is to be the total level of public expenditure?

It is upon those elements that these amendments depend. We need to bend down the curve of public expenditure and to bend down the curve of direct taxation. That will mean a substantial increase in indirect taxation. The hon. Member for Cornwall, North did not mention the need to reduce public expenditure. For him, indiscriminate food and housing subsidies are acceptable. We assert that there should be a substantial reduction in public expenditure as well as on taxation on direct income.

7.15 p.m.

Paragraph 12 continues: My own belief"— that is the belief of the Chancellor— is that the present levels of direct taxation have proved discouraging to effort and efficiency, and if they were to continue unchanged they could threaten the improvement in our economic performance which is an essential objective of the Government's strategy. Who would put up the taxes to the level about which the Chancellor of the Exchequer was obliged to write to Dr. Witteveen and say that they had not reached a level at which they were a disincentive? Until the Chancellor was compelled to have these discussions with Dr. Witteveen we did not hear about the disincentive effect of taxation. We were all misled into believing that perhaps the Chancellor of the Exchequer would have the courage of his convictions and do something radical about direct rates of tax.

There was an opportunity to follow up the famous letter of 15th December in this Finance Bill but the Chancellor has failed to take it. That is why we tabled these amendments. I hope that in the further discussions between the Government and Dr. Witteveen in the autumn the Government will listen closely to what he says and to the advice that he gives on this crucial element of direct taxation.

The brain drain, the brain flood and lack of motivation are dangers that will come to pass. The argument by the hon. Member for Cornwall, North—that the cost of making these reductions is small—should weigh heavily with the Government. A little more courage and imagination from Ministers would be welcome.

Photo of Mr Denzil Davies Mr Denzil Davies , Llanelli

I shall speak mainly to Amendment No. 33, although it is not much different from the amendment tabled by the hon. Member for Norfolk, South (Mr. MacGregor). The only difference of substance is that the official Opposition's amendment is slightly more modest in cost—to the tune of about £40 million. Nevertheless, the Opposition amendment seeks a further immediate reflation of £435 million into the economy. The right hon. and learned Member for Surrey, East (Sir G. Howe) shakes his head, but he is asking for a further taxation reduction of £435 million.

In my brief experience of Finance Bill Committees I have discovered that when we debate capital taxes the Opposition manage to find an impecunious disabled lady living somewhere in the country who happens to be the beneficiary of a discretionary trust in the Cayman Islands. The Opposition always argue that if we introduce a particular clause it will cause that lady difficulties. When we debate income tax, the Opposition talk of managers working for the good of the country and say that taxes should be reduced for their benefit.

That might be the case, but the hon. Member for Wolverhampton, South-West (Mr. Budgen) was more honest. He said that we were concerned with making rich men and keeping men rich. He implied that talk about worthy managers was to cloak the amendments with a certain amount of respectability. [Interruption.] This is my own brief. Having sat here for hours, I am entitled to make my own speech.

We are not concerned with the tax rates of managers and of no one else, or, indeed, the tax rates of only the worthy surgeon or physician. We are concerned with reducing the tax rates for everyone who pays at the higher rates. There is no amendment seeking to reduce the taxes on managers of multinational companies or managers of ball-bearing companies in the Midlands or whatever other worthy activities in which managers are involved. Indeed, if the Government were to introduce an amendment—even if we were able to frame one—to reduce the higher rates of tax for managers and surgeons and to leave as they are higher rates for solicitors, bankers, stockbrokers, lawyers and other worthy people, we should hear long speeches from Conservative Members about discrimination, danger to the economy, the balance of payments and invisibles and reductions in taxation in general.

Therefore, I do not think that we should take too seriously the long speeches, particularly that of the right hon. and learned Member for Surrey, East, about the need to reduce taxes for managers. The Bill will reduce taxation for everyone earning these higher levels of income.

Who are these people who earn more than £20,000 a year? I do not know. No doubt some are managers, but I suspect that the majority are not managers. I have no figures to support that view, but I have a feeling that most, perhaps, are either self-employed—I am not saying that they are not worthy people—or are professional people such as solicitors, accountants and economic advisers, and perhaps some civil servants. Perhaps the majority are not managers. Therefore, we should not make too much of the point that here we are seeking to hand tax back—if that is the right phrase—or to reduce the burden of taxation to the extent of £435 million for these worthy managers.

I asked the right hon. and learned Member for Surrey, East "Where will you find the money?" He said "We shall raise indirect taxation". Then he specified that he would raise the rate of value added tax, to 10 per cent. presumably, to pay for this £435 million. Therefore, the Opposition are quite prepared to relieve this burden of £435 million of tax on the higher income groups and to do so by ensuring that the British public in general pay the bill through increasing the cost of living—that is the effect of raising the rate of VAT to 10 per cent.—on everyone in order to pay for this £435 million. That was what the right hon. and learned Gentleman said.

In addition to that, there are other amendments to the Bill and no doubt we shall hear the same story again: "We shall pay for this by raising the rate of VAT." I read in the Daily Mail today an article saying that the Tory Party would now abolish rates and pay for the extra £2,000 million, presumably, again by raising VAT. I do not know what the rate of VAT will ultimately be when the Opposition have finished with it.

However, the £435 million is to be paid for, as the Opposition would have it, by increasing the cost of living. No doubt the British public will be very interested in that proposition.

Then we come to another word—"reflation". That was not mentioned at all by Opposition Members. That is curious, especially as the hon. Member for Eastbourne (Mr. Gow) has taken part in the debate. He was very concerned—I understand his concern—that we should not reflate the economy because that creates inflation, yet we have had speech after speech seeking a reflation of £435 million. Last night the hon. Member for Guildford (Mr. Howell) said that the Government have a bottle from which they take a reflationary swig from time to time. However, it seems that the Opposition have the bottle. They are the people who want to reflate—tonight to the tune of £435 million.

One wonders about reflation. When it benefits the higher paid it is all right for society, according to the Opposition, but when it benefits the lower and middle income groups there is apparently a danger.

Photo of Mr Geoffrey Howe Mr Geoffrey Howe , East Surrey

The hon. Gentleman must understand that the purpose of the debate is to press as strongly as we can on the present Government the folly that they are committing in maintaining this level of taxation on these kinds of taxpayers. This is a serious amendment on which we shall be voting to underline the importance of the message. It is not suggesting a method of balancing the management of the economy. The House of Commons is the place in which we argue cases of this nature. That is the right way of doing it. But a change of this kind would have to be made in the context of the reconstruction of the Budget. We shall be voting to drive upon the Minister the importance of the principles of the amendment.

Photo of Mr Denzil Davies Mr Denzil Davies , Llanelli

It seems that the amendment has been moved to raise the issue, which the right hon. and learned Gentleman considers to be important, but I think that when we vote we should do so seriously. It is a specific vote and not about an argument or a principle. It is about reducing taxation by £435 million for people who earn £5,000 and more a year. The right hon. and learned Gentleman cannot get out of it in that way. He is presumably saying "We shall vote, but we hope we shall lose". He is concerned not with winning the vote but with making a point. That is rather discourteous to the procedures of the House of Commons.

Once again, with reflation to the extent of £435 million, it is said that inflation here is a good thing and that there is nothing wrong with it. The Opposition say "We want this kind of reflation, even though it makes inflation worse and benefits one particular group". [Interruption.] The right hon. and learned Gentleman should not mutter. He has made his point. He is on a bad point.

Finally, we have, of course, accepted that the marginal rates of tax—we are talking about a marginal rate of 83 per cent.; it is not an effective rate—on international comparisons, looking at what managers are paid in other countries by multinational companies, mean that managers in this country are probably worse off in terms of after-tax income than managers in many other countries. We accept that we have to compete in this market, whether or not we like it, and we have to try to get to a situation in which this disparity is to some extent evened out.

That is what the Government have tried to do by the Budget. We have had a previous debate on the matter. The Sunday Times Business News—a very weighty and influential newspaper—was quoted at me. Apparently, The Sunday Times thought that the £270 million that we are already giving—the increase in the threshold and the other rates—meant that executives were laughing in the boardrooms, or the washrooms, or wherever The Sunday Times thought executives were laughing.

If we added another £435 million—that is what the amendment is about—to that £270 million, we should be going much too far to benefit one group when there are so many other groups in our society who have suffered perhaps more than some of those at the top end of the income scale. It would be completely indefensible, especially considering the need to secure a third year of incomes policy. It would be wrong to do it. We should be going much too far.

The Government have made a start on the problem. I do not pretend that we have gone as far as we can. There are problems. I think that we should go further and reduce the top rate of income tax. However, this year we have gone as far as we can by reducing income tax by £2¼ billion altogether.

The right hon. and learned Member for Surrey, East says that the Opposition will be voting but that they are not serious about it. I ask him to withdraw the amendment, not only because it is intrinsically bad but because the Opposition, in pressing it to a vote, are not keen on winning it. They are playing games with our procedures. I suggest that if they have any responsibility at all, they should withdraw the amendment. They have made their points and expressed their arguments, but now they are afraid to withdraw the amendment. I suggest to the Committee that if the Opposition do not withdraw the amendment it should be thrown out.

Photo of Mr John MacGregor Mr John MacGregor , South Norfolk

I think that we should prefer to make our point on Amendment No. 33 and not on Amendment No. 18. Therefore, I beg to ask leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Amendment proposed: No. 33, in page 11, line 14, leave out '£6,000' and insert '£8,000'.—[Sir G. Howe.]

Question put, That the amendment be made:—

The Committee divided: Ayes 208, Noes 235.

Division No. 129]AYES[7.29 p.m.
Adley, RobertGower, Sir Raymond (Barry)Morrison, Charles (Devizes)
Alison, MichaelGray, HamishMorrison, Hon Peter (Chester)
Amery, Rt Hon JulianGriffiths, EldonMudd, David
Arnold, TomGrist, IanNeave, Airey
Atkins, Rt Hon H. (Spelthorne)Gryils, MichaelNelson, Anthony
Awdry, DanielHall, Sir JohnNeubert, Michael
Bain, Mrs MargaretHamilton, Michael (Salisbury)Newton, Tony
Baker, KennethHampson, Dr KeithOnslow, Cranley
Bell, RonaldHannam, JohnOppenheim, Mrs Sally
Benyon, W.Harrison, Col Sir Harwood (Eye)Page, John (Harrow West)
Berry, Hon AnthonyHarvie Anderson, Rt Hon MissPage, Rt Hon R. Graham (Crosby)
Biffen, JohnHavers, Sir MichaelPage, Richard (Workington)
Biggs-Davison, JohnHayhoe, BarneyParkinson, Cecil
Blaker, PeterHenderson, DouglasPattie, Geoffrey
Body, RichardHiggins, Terence L.Percival, Ian
Bottomley, PeterHodgson, RobinPeyton, Rt Hon John
Bowden, A. (Brighton, Kemptown)Holland, PhilipPrice, David (Eastleigh)
Boyson, Dr Rhodes (Brent)Hordern, PeterPrior, Rt Hon James
Braine, Sir BernardHowe, Rt Hon Sir GeoffreyPym, Rt Hon Francis
Brittan, LeonHowell, David (Guildford)Rathbone, Tim
Brocklebank-Fowler, C.Hunt, John (Bromley)Rawlinson, Rt Hon Sir Peter
Brooke, PeterHurd, DouglasRees, Peter (Dover & Deal)
Brotherton, MichaelHutchison, Michael ClarkRees-Davies, W. R.
Brown, Sir Edward (Bath)James, DavidRenton, Rt Hon Sir D. (Hunts)
Bryan, Sir PaulJenkin, Rt Hon P. (Wanst'd & W'df'd)Renton, Tim (Mid-Sussex)
Buchanan-Smith, AlickJohnson Smith, G. (E Grinstead)Rhodes James, R.
Buck, AntonyJones, Arthur (Daventry)Ridley, Hon Nicholas
Budgen, NickJopling, MichaelRlfkind, Malcolm
Bulmer, EsmondKaberry, Sir DonaldRoberts, Michael (Cardiff NW)
Burden, F. A.King, Evelyn (South Dorset)Roberts, Wyn (Conway)
Carlisle, MarkKing, Tom (Bridgwater)Rossi, Hugh (Hornsey)
Chalker, Mrs LyndaKnight, Mrs JillRost, Peter (SE Derbyshire)
Churchill, W. S.Knox, DavidSt. John-Stevas, Norman
Clark, Alan (Plymouth, Sutton)Latham, Michael (Melton)Scott, Nicholas
Clark, William (Croydon S)Lawrence, IvanShaw, Giles (Pudsey)
Clarke, Kenneth (Rushcliffe)Lawson, NigelShelton, William (Streatham)
Clegg, WalterLester, Jim (Beeston)Shepherd, Colin
Cockcroft, JohnLewis, Kenneth (Rutland)Shersby, Michael
Cope, JohnLloyd, IanSilvester, Fred
Cormack, PatrickLoveridge, JohnSims, Roger
Costain, A. P.McAdden, Sir StephenSinclair, Sir George
Crawlord, DouglasMacCormick, lainSkeet, T.H.H.
Crowder, F. P.McCrindle, RobertSmith, Timothy John (Ashfield)
Dodsworth, GeoffreyMacfarlane, NellSpeed, Keith
Douglas-Hamilton, Lord JamesMacGregor, JohnSpence, John
Drayson, BurnabyMackay, Andrew JamesSpicer, Michael (S Worcester)
Durant, TonyMacmillan, Rt Hon W. (Farnham)Sproat, Iain
Eden, Rt Hon Sir JohnMcNair-Wilson, M. (Newbury)Stainton, Keith
Elliott, Sir WilliamMcNair-Wilson, P. (New Forest)Stanbrook, Ivor
Emery, peterMadel, DavidSteen, Anthony (Wavertree)
Evans, Gwynfor (Carmarthen)Marshall, Michael (Arundel)Stewart, Rt Hon Donald
Ewing, Mrs Winifred (Moray)Mates, MichaelStewart, Ian (Hitchin)
Eyre, ReginaldMather, CarolStokes, John
Fairbairn, NicholasMaude, AngusStradling Thomas, J.
Fairgrieve, RussellMaudling, Rt Hon ReginaldTapsell, Peter
Fell, AnthonyMawby, RayTaylor, Teddy (Cathcart)
Fisher, Sir NigelMavhew, PatrickTebbit, Norman
Fletcher, Alex (Edinburgh N)Meyer, Sir AnthonyTemple-Morris, Peter
Forman, NigelMiller, Hal (Bromsgrove)Thomas, Rt Hon P. (Hendon S)
Fox, MarcusMills, PeterThompson, George
Gardiner, George (Reigate)Miscampbell, NormanTownsend, Cyril D.
Gardner, Edward (S Fylde)Moate, RogerViggers, Peter
Gilmour, Sir John (East Fife)Monro, HectorWakeham, John
Glyn, Dr AlanMontgomery, FergusWalder, David (Clitheroe)
Godber, Rt Hon JosephMoore, John (Croydon C)Walker, Rt Hon P. (Worcester)
Goodlad, AlastairMorgan, GeraintWeatherill, Bernard
Gorst, JohnMorgan-Giles, Rear-AdmiralWells, John
Gow, Ian (Eastbourne)Morris, Michael (Northampton S)Welsh, Andrew
Wigley, DafyddWlnterton, NicholasTELLERS FOR THE AYES:
Wilson, Gordon (Dundee E)Younger, Hon GeorgeMr. Spencer Le Merchant and Sir George Young
NOES
Abse, LeoHamilton, James (Bothwell)Orme, Rt Hon Stanley
Allaun, FrankHarrison, Walter (Wakefield)Ovenden, John
Archer, PeterHart, Rt Hon JudithPadley, Walter
Armstrong, ErnestHatton, FrankPalmer, Arthur
Ashley, JackHayman, Mrs HelenePardoe, John
Ashton, JoeHeffer, Eric S.Park, George
Atkins, Ronald (Preston N)Hooley, FrankPavitt, Laurie
Atkinson, NormanHooson, EmlynPendry, Tom
Bates, AlfHoram, JohnPenhaligon, David
Bean, R. E.Howell, Rt Hon Denis (B'ham, Sm H)Price, William (Rugby)
Beith, A. J.Howells, Geraint (Cardigan)Radice, Giles
Bennett, Andrew (Stockport N)Hoyle, Doug (Nelson)Rees, Rt Hon Merlyn (Leeds S)
Bidwell, SydneyHuckfield, LesRichardson, Miss Jo
Bishop, E. S.Hughes, Robert (Aberdeen N)Roberts, Albert (Normanton)
Blenkinsop, ArthurHughes, Roy (Newport)Roberts, Gwilym (Cannock)
Boardman, H.Hunter, AdamRobinson, Geoffrey
Booth, Rt Hon AlbertIrvine, Rt Hon Sir A. (Edge Hill)Roderick, Caerwyn
Boothroyd, Miss BettyIrving, Rt Hon S. (Dartford)Rodgers, George (Chorley)
Brown, Hugh D. (Provan)Jackson, Colin (Brighouse)Rooker, J. W.
Buchan, NormanJackson, Miss Margaret (Lincoln)Rose, Paul B.
Buchanan, RichardJay, Rt Hon DouglasRoss, Stephen (Isle of Wight)
Callaghan, Jim (Middleton & P)Jeger, Mrs LenaRoss, Rt Hon W. (Kilmarnock)
Campbell, IanJenkins, Hugh (Putney)Rowlands, Ted
Canavan DennisJohn, BrynmorRyman, John
Cant, R. B.Johnson, James (Hull West)Sedgemore, Brian
Carmichael, NeilJohnson, Walter (Derby S)Selby, Harry
Carter-Jones, LewisJohnston, Russell (Inverness)Sheldon, Rt Hon Robert
Cartwright, JohnJones, Alec (Rhondda)Shore, Rt Hon Peter
Castle, Rt Hon BarbaraJones, Barry (East Flint)Short, Mrs Renée (Wolv NE)
Clemitson, IvorKaufman, GeraldSilkin, Rt Hon John (Deptford)
Cocks, Rt Hon MichaelKelley, RichardSilkin, Rt Hon S. C. (Dulwich)
Cohen, StanleyKerr, RussellSilverman, Julius
Coleman, DonaldKilroy-Silk, RobertSkinner, Dennis
Colquhoun, Ms MaureenKinnock, NeilSmall, William
Conlan, BernardLambie, DavidSmith, Cyril (Rochdale)
Cook, Robin F. (Edin C)Lamborn, HarrySmith, John (N Lanarkshire)
Corbett, RobinLamond, JamesSpearing, Nigel
Cowans, HarryLatham, Arthur (Paddington)Spriggs, Leslie
Cox, Thomas (Tooting)Lee, JohnStallard, A. W.
Crawshaw, RichardLestor, Miss Joan (Eton and Slough)Stewart, Rt Hon M. (Fulham)
Crowther, Stan (Rotherham)Lever, Rt Hon HaroldStoddart, David
Cryer, BobLewis, Ron (Carlisle)Stott, Roger
Cunningham, G. (Islington S)Loyden, EddieStrang, Gavin
Davidson, ArthurLuard, EvanSummerskill, Hon Dr Shirley
Davies, Bryan (Enfield N)Lyon, Alexander (York)Taylor, Mrs Ann (Bolton W)
Davies, Denzil (Llanelli)Lyons, Edward (Bradford W)Thomas, Jeffrey (Abertillery)
Davis, Clinton (Hackney C)Mabon, Rt Hon Dr J. DicksonThomas, Mike (Newcastle E)
Deakins, EricMcCartncy, HughThomas, Ron (Bristol NW)
Dean, Joseph (Leeds West)McDonald, Dr OonaghThorne, Stan (Preston South)
Dell, Rt Hon EdmundMcElhone, FrankThorpe, Rt Hon Jeremy (N Devon)
Dempsey, JamesMacFarquhar, RoderickTierney, Sydney
Doig, PeterMacKenzie, GregorTinn, James
Douglas-Mann, BruceMackintosh, John P.Torney, Tom
Dunn, James A.McMillan, Tom (Glasgow C)Tugendhat, Christopher
Dunnett, JackMcNamara, KevinVarley, Rt Hon Eric G.
Eadie, AlexMadden, MaxWainwright, Edwin (Dearne V)
Edge, GeoffMahon, SimonWalker, Terry (Kingswood)
Ellis, John (Brigg & Scun)Mallalieu, J.P.W.Ward, Michael
English, MichaelMarks, KennethWatkins, David
Evans, Fred (Caerphilly)Marshall, Jim (Leicester S)Weitzman, David
Evans, Ioan (Aberdare)Maynard, Miss JoanWhite, Frank R. (Bury)
Ewing, Harry (Stirling)Meacher, MichaelWhite, James (Pollok)
Faulds, AndrewMendelson, JohnWhitlock, William
Flannery, MartinMikardo, IanWilley, Rt Hon Frederick
Fletcher, Ted (Darlington)Millan, Rt Hon BruceWilliams, Rt Hon Alan (Swansea W)
Foot, Rt Hon MichaelMiller, Dr M. S. (E Kilbride)Williams, Rt Hon Shirley (Hertford)
Ford, BenMiller, Mrs Millie (Ilford N)Williams, Sir Thomas (Warrington)
Fowler, Gerald (The Wrakin)Mitchell, Austin Vernon (Grimsby)Wilson, Alexander (Hamilton)
Fraser, John (Lambeth, N'w'd)Molloy, WilliamWilson, Rt Hon Sir Harold (Huyton)
Freeson, ReginaldMoonman, EricWilson, William (Coventry SE)
Garrett, John (Norwich S)Morris, Alfred (Wythenshawe)Wise, Mrs Audrey
George, BruceMorris, Charles R. (Openshaw)Woodall, Alec
Gilbert, Dr JohnMorris, Rt Hon J. (Aberavon)Woof, Robert
Golding, JohnMoyle, RolandWrigglesworth, Ian
Gould, BryanMurray, Rt Hon Ronald KingYoung, David (Bolton E)
Gourlay, HarryNewens, Stanley
Graham, TedNoble, MikeTELLERS FOR THE NOES:
Grant, George (Morpeth)Oakes, GordonMr. Peter Snape and
Grant, John (Islington C)Ogden, EricMr. Joseph Harper.
Grocott, BruceO'Halloran, Michael

Question accordingly negatived.

Photo of Mr Peter Hordern Mr Peter Hordern , Horsham and Crawley

I beg to move Amendment No. 19, in page 11, leave out lines 18 to 25 and insert '£4,000 at the additional rate of 15 per cent.'. This amendment, which seeks to raise the threshold at which the investment income surcharge becomes payable, is a modest proposal. I hope that I shall not be told that, because it would cost £200 million, or whatever the figure is, the amendment is disgraceful. It would simply restore the position of someone who had an investment income up to the surcharge limit in 1973.

Although it can be argued strongly that the surcharge after the £4,000 limit which we suggest would be a penal rate at 15 per cent., it would do no more than restore the position to what it was when the Conservatives were last in power. All that has happened is that inflation has moved the effective value of the surcharge from £2,000 in 1973 to £4,000 today.

I believe that we should be able to expect whole-hearted Liberal support on the amendment. I am glad that the hon. Member for Cornwall, North (Mr. Pardoe) is with us, since I want to remind him of something he said in the equivalent debate last year. I do not know whether he was deputy leader of his party then, but at least as his party's economic spokesman he said: I do not wish to amplify the arguments which have already been deployed, but rather to recap on a previous period. During that Utopian period when democracy was restored to our parliamentary institutions, when the Liberal Party held the balance of power—the quicker it happens again the better—what good sense was produced. We managed to defeat the Treasury Bench and to increase the threshold for investment income to £2,000. It is a pity we cannot do that again tonight".—[Official Report, 11th May 1977; Vol. 911, c. 383.] But we can do that again tonight. If one revalorised what we did then with the help of the Liberal Party, one would get exactly what is proposed in the amendment. I look forward to the hon. Gentleman's support. Otherwise it would be the rankest inconsistency, and I know that he would not wish anyone to accuse him of that.

We should remember that the basic rate in 1973 was not 35 per cent. but 30 per cent. We are, therefore, talking in a different order of magnitude about the surcharge on the basic rate.

If, as was argued strongly at the time, things were very difficult for retired people then, they are so much more difficult for retired people living on investment income today. For example, let us suppose that by some miraculous advice a retired married couple had been able to increase their investment income from £2,000 to £4,000—which would allow only for the increase in the cost of living over the period. I know of no such wizard, but let us suppose that that had happened. As a result, they would he paying the top marginal rate of 50 per cent. on the marginal level of investment income over and above the £2,000. That in any case would be a penal rate of tax, even supposing that the married couple had managed to achieve an extraordinary increase in investment income.

7.45 p.m.

However, far from there being any increase in investment income, it is more likely that those who are retired and depend on investment income have their investments in fixed-interest securities and have received no real increase in investment income. They have had to bear the extraordinary increase in the cost of living over that time, the increase in rates and other increases of every kind. These are the people who have suffered most from this restraint.

The Government have recognised this situation in some degree by allowing these people to have index-linked bonds up to a stake of £500. However, if the Government decided to increase the amount to, say £1,000, these people would stand a risk before long of paying surtax and the investment income surcharge simply through having bonds which managed to keep their real value. That is the extraordinary position that we have reached under this Government.

Since, I understand, about 42 per cent. of investment income surcharge payers are retired, there is a strong case for the total exemption of pensioners. I understand from the reply to a Question that I put down a few months ago that the cost would be about £130 million. If the Minister of State says that we cannot afford that sum, let him tell us what it would cost to exempt all pensioners with investment incomes of less than £4,000. I do not know what that cost would be, but at any rate the case for such an exemption must be very strong.

This case is not simply one for comparison with other people in society: it is a very strong case in equity. These people cannot extort larger wage increases. They have to depend largely on fixed-interest security and they receive no increases in the value of their investment income.

It is also useful to recall the position of some of those to whom the Minister of State said earlier that the Government are particularly favourable—the small managers. It is not out of this world to suggest that a middle manager would be able to buy his own house and to set up a life policy, leaving both the house and the matured policy to his widow when he died. In such circumstances it is likely that the widow would sell the house as it is probable that it would be too large. It is likely that she would find herself with a sum of £20,000 after buying herself a small bungalow or flat, and perhaps over £20,000 from the proceeds of the life policy.

Again, there is the extraordinary distinction between the person who receives a pension from an institution or firm and the person who has saved throughout his life and receives investment income. That is a distinction that is difficult to justify. However, the sums that I have mentioned represent a perfectly ordinary expectation for a middle manager to be able to secure for his widow. One would have thought that it was an admirable thing to do.

That sum when invested would secure an income which would be liable now—especially if the widow were over 60 years of age—to the surcharge on the investment income. That would lead to a marginal rate of 50 per cent. I say that that is an inhuman rate of tax for a person in the situation that I have outlined. We are not talking about very rich people. We are talking about the ordinary person's expectation. We are talking about a sum that a widow should be able to receive as a result of the hard work of her husband and through the sale of a house and a life policy.

Photo of Mr Denzil Davies Mr Denzil Davies , Llanelli

I am sure that the hon. Gentleman wishes to make it clear that the surcharge would not apply to the first £1,500 of income. If the widow is between 60 and 65, the surcharge starts to apply only after she has received £1,500.

Photo of Mr Peter Hordern Mr Peter Hordern , Horsham and Crawley

I am aware of that. However, even now an income of about £1,500 can easily be secured through investment in long-dated Government bonds. It is still possible to secure 13 per cent. or 14 per cent. without any great difficulty. In those circumstances the marginal rate would be 50 per cent. That is an extortionate rate and one that cannot be found in any other civilised country.

Let us take the example of someone who has been made an award for an industrial injury. Compensation is given in a lump sum. Alternatively, compensation might be awarded to someone who has been wounded, for example, in action in Northern Ireland. The investment income from such an award is liable to the surcharge. I do not think that that is defensible, either.

I had a case of a constituent who was run over and who suffered severe injuries. The constituent was awarded a sum that is not substantial. He is able to work but finds great difficulty in obtaining employment. I understand that he has been seeking employment for more than six months. As the Committee knows, after that period he is no longer entitled to any unemployment benefit. He has been told that to qualify for social security benefit he must relinquish the award that he obtained from the industrial tribunal.

That is a disgraceful state of affairs. As it is not especially relevant to the amendment I hasten to pass on. I mentioned the matter in passing because of the disgraceful treatment of those who receive awards, whether for industrial injuries or personal injury, and the treatment of investment income from such awards. It is equally disgraceful whether it is an award of the sort to which I have referred or income originating from capital that has been invested.

It is well known that about 37 per cent. of all farm land in England and Wales is farmed by tenant farmers. The position has been well made out by the farming community that it receives a low return on its investment and takes a considerable interest in the way that the land is farmed. It is recognised that management expenses and expenses incurred in running the land can be offset against income before tax. The principle is already allowed. Surely there is a strong case for exempting tenanted land from the surcharge on investment income and making no distinction between investment and earned income.

If we consider the level of the surcharge on investment income, it is clear that we live in a different environment from any other country. In most countries there is no distinction between earned income and investment income. Perhaps even more important, no other country starts tax from such low thresholds and at such high rates.

I thought it would be interesting to get some figures. I am told that for a 40 per cent. rate to apply in France—in France I do not think that there is any distinction between earned and investment income—£10,500 of taxable earnings would have to be received. In Germany there would have to be £8,000 of taxable earnings for a 30 per cent. rate. In the United States there would have to be earnings of £31,000 for a 30 per cent. rate. In the United Kingdom a retired couple pay 50 per cent. marginal tax on taxable investment income of £2,500. I ask the Committee to compare those extraordinary figures.

If we consider the expediency of those who have saved hard for their old age and compare their position with the ordinary expectation of any such couple in any other civilised country, whether it is a country in Western Europe or the United States, the comparison is appalling. When the Minister of State says, as he does so often, that we have to think of the position of the less fortunate members of our society—we must think of them and, of course, that is an acceptable argument—we must also remember the extraordinary disparity of treatment of those here who have saved hard and worked hard all their lives and the treatment of such people in any other country.

I believe that our system represents a gross injustice for retired people. If this is how we treat retired people, it is difficult to justify calling ourselves a civilised country, as other countries can, bearing in mind the way in which they treat those who have worked hard and saved hard all their lives.

The truth is that the Labour Party has never cared very much for savers, whether they are small investors or large. This is not merely a matter of fair treatment for those who have saved hard and worked hard all their lives. There is a substantial economic factor that must be considered. Under the present arrangements there is no incentive to save. There is no incentive for any private person to make any disposition of his earnings after tax, such as they must be with tax as it is, in order to save. That is partly because the return on investment is so small, especially with dividend restraint and the present level of inflation. Any return on investment must appear to be very poor when compared with the present level of inflation.

The effect of the present position has been seen clearly in the past five years. The private investor has been getting out of his savings. That has been happening on an increasing scale over the past five years. The fact is that 10 years ago private investors were responsible for about 70 per cent. of the turnover in the equity market on the Stock Exchange. At that time the institutions were responsible for about 30 per cent. of that turnover. Three years ago private investors were responsible for 44 per cent. of the turnover while institutional investors were responsible for 56 per cent.

The latest figures that I have received from the Stock Exchange indicate that the private sector has declined to 32 per cent. of all the turnover in equities while the institutions have increased their turnover to 68 per cent. It cannot be very long before private investors cease to be a force of any sort in the equity market.

It might be asked whether it matters if the institutions are to dominate the stock markets, as they do at present. Indeed, they are increasingly bound to do so. For a start, it makes a nonsense of dividend restraint. As a high proportion of investment is carried out by institutional investors, most dividend restraint is being applied to the investments of pension funds and insurance companies. Most of their members work in factories and are to be found on the shop floor. Those most affected by the change and turn of events are those whom the Labour Party fondly imagines to be its supporters. I believe that the effect of dividend restraint is wholly harmful to the longterm prospects of those in pension funds. This is becoming increasingly known, not least by the trade unions themselves.

8 p.m.

It is also likely to have another effect—that their investment is becoming increasingly tied to the public sector borrowing requirement. Referring to last year, the Financial Statement states: By late June and early July, a prospective conflict was emerging between public and private borrowing. It is easy to forget, less than a year later, what the position was then. There was strong competition for funds, and the Government were at that time totally unable to raise funds on the Stock Exchange through the sale of gilt-edged securities.

Now the position has changed. The Government do not find it so difficult to raise funds by the sale of gilt-edged securities. But the reason is that private investors and institutional funds have long since stopped investing in equities because the return on Government securities was so large. So there is a direct link between the size of the public sector borrowing requirement and the institutional direction of investment.

If the public sector borrowing requirement is large, and the Government are dependent on the massive sale of gilt-edged securities to the non-bank public, that can only lead to the result that institutions must invest in gilt-edged securities. The effect is that the outlook for the market in equities becomes depressed and the ability of companies to raise money on the Stock Exchange is very adversely affected. Equities are doing so well because the equity market has been flat on its back for a long time and only very recently are the institutions turning their investing in Government securities towards equities. The market has gone so far up because of the very small presence of private investors. It is almost wholly institutional investment, and is likely to become more so.

The position is clear. We do not need the Wilson Committee to tell us about it. The larger the public sector borrowing requirement, the more the institutions will invest in gilt-edged securities and the less money there will be available for industry. It is a clear course of events. I hope that it will be put plainly to the Wilson Committee.

If ever there was a useless line of inquiry, it is that of the Wilson Committee. Talking about a Royal Commission, the right hon. Member for Huyton (Sir H. Wilson) said that it would take minutes and waste years. I do not suppose that he will waste years, but he will take minutes, and what is to be found out about the situation is already well known.

The surcharge on investment income has had a considerable effect on the level of private savings in industry generally. All those who are in the position of depending on investment income—and a large proportion of them are elderly people—have tended to invest in safe, gilt-edged securities. They have seen over the years the value of their investments decline—many of them by half, let alone what it is in real terms. These securities are still depressed. The least we can do is try to restore some kind of increase in earnings and some reduction of taxation of those who might rightly be called the most hard-pressed members of our society.

Photo of Sir John Hall Sir John Hall , Wycombe

I shall be brief, if only because I have spoken on this subject already on various occasions, particularly in the Finance Bill Committee last year. Since then, and with this Bill, we have had a modest but inadequate improvement of the situation.

I support everything said by my hon. Friend the Member for Horsham and Crawley (Mr. Hordern). He is right to say that the Labour Party dislikes savers. There seems to be in that party a deep, almost subconscious, dislike of investment income. There is the idea that, somehow or other those with investment income, however small, are wealthy people and can be clobbered without particular regard to the effect upon them as individuals.

I shall confine myself to one example, since many others have been given, of the damaging impact of this tax. Such cases must be common throughout the country. The man in Question retired with an endowment policy that he had accumulated in many years' service to the company of which he was a longstanding employee. I drew attention on Second Reading to the savage contrast between the way in which public service pensioners with indexed pensions are treated and the way in which those retiring on endowment policies or company pension schemes with invested savings are treated.

This gentleman was able to commute a considerable amount of his pension. Quite naturally and rightly, because the pension element is fixed, he commuted a large part in the hope that he would be able to invest to offset inflation. But he finds that his investment is not bringing in as much as he had hoped, because of dividend restraint. The increase in dividends has fallen far behind the increase in the cost of living in recent years. It has been impossibe to keep up with inflation by investing in equities in the hope that one's income will increase appropriately.

He invested in equities and various other forms of investment, but then found that his total investment income brought him within the 10 per cent. surcharge. Thus, in addition to his normal rate of tax, he pays the surcharge of 10 per cent. Indeed, he goes on to 15 per cent.

We should contrast his situation with that of the retired public servant. This man has for many years served a company well. He gets his pension at the end of it, but transmutes part of it into capital, which now bears the burden of the surcharge. The public servant retires on the same sort of pension arrangement, but with an indexed pension increased automatically year by year to take account of increases in the cost of living.

What is the justification for treating the income of a man who retired in the same circumstances, who has built up a pension on the same length of service but to a company, differently from the income of those, whether public servants or not, who escape this surcharge altogether? Had this gentleman retained his whole pension without commuting part, he would have escaped the surcharge on the total pension. But because he tried to cover himself against inflation, he is penalised.

That is just one example. There must be hundreds of other such examples of people on modest incomes, built up over a lifetime, on which they had hoped they would be able to have a reasonable standard of living. What is the point of treating them as if they were on large incomes of £30,000 or £40,000 a year? There is no justice in it. I shall be interested to hear the Minister of State trying to justify this type of taxation on people unfortunate enough to have small incomes derived from savings income.

Photo of Mr Peter Rees Mr Peter Rees , Dover and Deal

I am moved to intervene, although not so much by the merits of the amendment, which is modest, perhaps over modest. My hon. Friend the Member for Horsham and Crawley (Mr. Hordern) moved it in the eloquent and persuasive manner that one expects of him since he speaks with such authority. I intervene more to encourage the Minister to display perhaps some ministerial valour by resisting the outpourings of antediluvian envy of his hon. Friends, particularly the hon. Member for Coventry, South-West (Mrs. Wise), whose absence from the Chamber is marked by a mohair—or perhaps it is a cashmere—pullover draped on the Back Benches. We may discover that the Chancellor of the Exchequer wants not 98 per cent. but only 95 per cent. of the higher levels of investment income.

I believe that it is dangerous to distinguish on moral, or maybe political, grounds between various categories of income. If we venture into that area we shall be compelled to base judgments on the relative merits of our various occupations, and how will the Minister distinguish between the income earned by nurses, policemen—I take these categories at random—bookmakers, Members of Parliament, or members of the Prime Minister's private office? Are they to be awarded a differing moral scale and be subject to tax at differing rates?

I am sure that the Minister of State, if not his hon. Friends below the Gangway, will soon recognise the political and practical difficulties of such a course. In any event, the distinction between earned and unearned income is extremely capricious. Why should a landowner—I take a particularly emotive category in the absence from the Chamber of the Tribune Group—be subject to the investment income surcharge on his rental income when the Committee knows that the management of property, whether agricultural or urban, is particularly complex in this day and age? Why should he be subject to the surcharge when, if he chooses to employ an estate agent, that estate agent would not be subject to investment income surcharge on the fees that he received?

Or let us take the case of a retired farmer. It may be in the experience of the Committee that although farmers' incomes are somewhat low, they depend on the capital appreciation of their property. When the farmer comes to retire, he sells that property and invests. He is left with what is laughingly described as investment income, which in fact is the fruits of a particularly arduous career. Why should farmers be subject to the surcharge of 15 per cent. while those in other occupations are treated as though they received earned income?

My hon. Friend the Member for Wycombe (Sir J. Hall) aptly told us of the person who chooses to commute his retirement annuity and invest it, and perhaps that of his wife. Why should he be treated in any different guise from a person who receives a Civil Service annuity? Distinctions, at the end of the day, are arbitrary and capricious. As my hon. Friend the Member for Horsham and Crawley pointed out, 42 per cent. of the investment income surcharge is paid by taxpayers over the age of 65, which shows that we are dealing in most cases with savings income and not a windfall of the kind apparently so offensive to those hon. Members sitting, or rather absent from, below the Gangway.

I hope the Committee will forgive me if I remind it of the historic basis for the distinction between earned and investment income. The Minister of State is smiling. No doubt he has received the usual meticulous brief from Somerset House. But I would remind the Committee that initially there was no distinction of earned income relief, which was introduced some time before the First World War as a recognition of the deterioration of hand, eye and brain. It was a capital allowance for human capacity, as it were, and a recognition of the impermanence of employment.

But the converse is frankly not true. It was never designed as a penalty for thrift or enterprise as it has now become under the singularly maladroit stewardship of the present Chancellor of the Exchequer.

In case hon. Members think that capital does not bear any fiscal burden, I would remind the Committee that capital bears stamp duty at 2 per cent. and stamp duty was originally introduced as a kind of capital levy. There is capital gains tax, which is now no more than a capital levy, bearing in mind the ravages of inflation. Finally, we have capital transfer tax at rates that are quite unimaginable in our competing countries of the Common Market.

8.15 p.m.

There has been a great deal of distasteful talk about an investment strike by means of owners of capital. For myself, I find this a rather distasteful metaphor. When one considers the commercial hazards to which investment is subjected and the hazards of the Socialist Government, which make it subject to capital gains tax at rates between 95 per cent. and 98 per cent., can we wonder why there is a certain reticence in this country on the part of the investor?

The amendment goes a very small way to remedying this injustice. I hope that the Minister of State will turn his back on his absent colleagues below the Gangway and rise to the challenge. I am sure that the understanding and sympathy, which I know have made him a byword in Somerset House, will induce him on this occasion to accept what is perhaps an over-modest amendment.

Photo of Mr John Pardoe Mr John Pardoe , North Cornwall

I find myself very much in agreement with many of the remarks that have been made in this debate. I found the arguments used by the hon. Member for Horsham and Crawley (Mr. Hordern) familiar, because they are arguments that I have used on more than one occasion and shall do so again.

The hon. Gentleman quoted some remarks about the beneficial effect of the Liberals holding the balance of power in 1974, when we were able to raise the investment income surcharge threshold quite considerably. I would say that some of the effects of the Liberals holding the balance of power are already apparent in this Finance Bill debate, although the hon. Gentleman's right hon. and hon. Friends will not have it that way. We may not be successful on investment income surcharge, but we have petrol and tomorrow we shall be debating VAT, and there are certain concessions on that.

Photo of Mr John Pardoe Mr John Pardoe , North Cornwall

I shall answer the hon. and learned Gentleman without his intervening. The fact is that the Government have tabled an amendment and he will have seen that already. He knows that the Government propose to raise the VAT threshold to £7,500, not as much as he or I would wish, but nevertheless a step in the right direction, as I am sure the hon. and learned Gentleman will admit. Petrol and VAT are two subjects on which we have been successful, and one has to have moderation in all things.

Photo of Mr Peter Hordern Mr Peter Hordern , Horsham and Crawley

This argument cannot be skated over like that. What the hon. Gentleman said was: We managed to defeat the Treasury Bench and to increase the threshold for investment income to £2,000. It is a pity we cannot do that again tonight."—[Official Report, 11th May 1977; Vol. 911, c. 383.] He was recalling the circumstances of what happened in 1974.

But it is not just a question of what the hon. Gentleman said. It is a question of what he actually did. He and his colleagues joined us in increasing the investment income surcharge threshold in that particular year. If he does not vote with us tonight, he will be inconsistent not only with his words but with his actions.

Photo of Mr John Pardoe Mr John Pardoe , North Cornwall

On that occasion it was not a question of my joining the Conservatives. In fact, it was the Conservatives who voted for my amendment. Let us get it the right way round.

I am not trying to shirk the responsibility for that glorious deed. What I am saying is that the hon. Gentleman may not have noticed that the Government have accepted the argument for increasing the investment income surcharge threshold, because in this Finance Bill the threshold is in fact increased. It is increased by 50 per cent., from £1,000 to £1,500 and for elderly people over 65 it has been raised to the level for which I asked in 1974, £2,000. £2,000 is not worth what it was in 1974—

Photo of Mr Peter Hordern Mr Peter Hordern , Horsham and Crawley

That is too much! What happened was that we voted to put up the threshold to £2,000, but at the end of October the Government came back with an increased majority and put it down. What they are now doing is to restore it to the position for which we voted in March 1974. But, because of the lapse of time, the correct figure should be £4,000. If the hon. Gentleman voted for it then, he must vote for it tonight.

Photo of Mr John Pardoe Mr John Pardoe , North Cornwall

That would mean that the Conservative Party had to join me in accepting the principle of indexation of the tax system. It is not prepared to do that, because the right hon. and learned Member for Surrey, East (Sir G. Howe) knows perfectly well that if by any incredible mischance of fate he should actually end up on the Government Benches, he would not want to be bound by indexation and by a commitment to raising tax thresholds in line with the cost of living, as the hon. Member for Horsham and Crawley is now arguing. That is a principle that I accept and that I have argued in this House for many years. I accept that principle, but I have not yet been able to persuade the Conservative Party to do the same. I hope that the hon. Member for Blaby (Mr. Lawson) will have more success in that direction.

The speeches we have heard from the Conservatives in this debate seem to have ignored entirely the fact that the Government have restored the position for which we argued in 1974. That is not enough. It is certainly not as much as I want, and it certainly does not coincide with the rise in the cost of living and the fall in the value of money. Nevertheless, it is a step in the right direction.

I am far more concerned to persuade the Government in the long term to reform our tax system than to make minor changes in taxation rates. In any case, as I have said, the Government have already made some minor changes in that direction.

I come now to the comments of the hon. and learned Member for Dover and Deal (Mr. Rees). He raised the fundamental question of whether we should be distinguishing between different types of income. There is a great deal to be said for that line of argument. I was interested in his history of the investment income surcharge, but I was not entirely sure that that was the main line of argument used when the surcharge was introduced. After all, we are not the only country to discriminate against income from investment.

Photo of Sir John Hall Sir John Hall , Wycombe

We are almost the only one.

Photo of Mr John Pardoe Mr John Pardoe , North Cornwall

By no means are we almost the only country to do that. When we introduced our system, we did so on the basis that the investment income conferred on the beneficiary some advantage over and above the advantage conferred upon him by income from work. The argument goes—and I do not necessarily accept it, because circumstances have changed since then, which is why I accept to a large extent the argument that the hon. and learned Gentleman was making—that in distinguishing between these two sorts of income an investment income confers a benefit because it is more permanent than income from work. A job could cease, or a man could become sick, or his working life could end. Income from investment would continue through all those circumstances.

Photo of Mr Peter Rees Mr Peter Rees , Dover and Deal

I think that the hon. Member for Cornwall, North (Mr. Pardoe) is starting from the wrong premise. It was argued not that investment income was more permanent, but that employment income was more precarious. There is a fundamental divide there. The hon. Member ought to recognise that fact in developing his interesting argument.

Photo of Mr John Pardoe Mr John Pardoe , North Cornwall

I believe that the hon. and learned Gentleman is splitting hairs, but we are basically on the same wavelength. If income from investment is more certain, it follows that income from work is more precarious.

At the time that the system was introduced, this country moved in the direction of a surcharge on investment income. Other European countries moved towards taxing the wealth direct. Whatever we may think now, and whether or not it would be possible to change, and how long that would take, I have no doubt that the arguments in favour of taxing the wealth from which the income derives rather than the income itself have enormous advantages. Those countries made the right decision and we made the wrong one.

In a previous debate, the hon. Member for Eastbourne (Mr. Gow) challenged me on the question of the wealth tax and said that he would be surprised if I were able to persuade the Government on this point. I have before me Volume I of the proceedings of the Select Committee on the Wealth Tax. It is true that the name of the hon. Member for Eastbourne is not shown as voting for a low threshold and heavy wealth tax. But the names of those voting in favour of that include 'Mr. Peter Rees, Mr. Paul Hawkins, Mr. Nigel Lawson"—

Photo of Mr Myer Galpern Mr Myer Galpern , Glasgow Shettleston

Order. The hon. Gentleman must refer to hon. Members by their constituencies.

Photo of Mr John Pardoe Mr John Pardoe , North Cornwall

I apologise, Sir Myer, but I was quoting from a report to the House of Commons, and I should have thought that I could quote names, although I stand corrected if I am wrong.

Photo of Mr Myer Galpern Mr Myer Galpern , Glasgow Shettleston

On reflection, I am sure, the hon. Member will appreciate that we ought to refer to constituencies. If the hon. Member has a list of names before him, it may present problems, although if he wishes to discover the constituencies of the Members concerned, I am sure that the Committee will bear with him.

Photo of Mr John Pardoe Mr John Pardoe , North Cornwall

I think that I can get most of them, Sir Myer. The names include the right hon. Member for Farnham (Mr. Macmillan), the hon. and learned Member for Dover and Deal, and the hon. Members for Blaby and Hove (Mr. Sainsbury). There are also the names of various others who voted in favour of my proposals.

Photo of Mr Peter Rees Mr Peter Rees , Dover and Deal

I apologise for interrupting the hon. Gentleman a second time, but the hon. Gentleman should remind the Committee of the considered view of my hon. Friends and myself in that Select Committee. There were certain tactical dilemmas about how we should vote. But I think that our considered views are embodied in the majority report. I happened to be one of the majority. It was only because the hon. Gentleman's particular views were put to us first that we voted for them. We did so on the basis that if a tax were to be introduced on the basis suggested by the hon. Gentleman, it should be matched by reductions in other direct taxation, which would have been unimaginable under the present Chancellor.

Photo of Mr John Pardoe Mr John Pardoe , North Cornwall

The hon. and learned Gentleman's memory of those proceedings is extraordinarily defective. The whole point about that Committee was that there was no majority report. He and his colleagues had no majority. The chairman did not command a majority, and nor did my colleagues. There was no majority, but my proposal won as many votes as did the proposal of the hon. and learned Gentleman. I think, therefore, that I can claim that I had the support of the majority of the Conservative Members of the Committee for a low threshold wealth tax instead of a surcharge on investment income. That is the only point I am making.

I believe that that is a sensible course to adopt, because to tax income from wealth means inevitably that we encourage people to use their wealth unproductively. If we tax the wealth rather than the income, we encourage people to use their wealth productively instead of spending it on such items as a Rolls-Royce, or even a picture. I am not saying that we should stop people owning such items. A person is encouraged to spend £20,000 or £30,000 on a Rolls-Royce because the benefit from that car is greater than the benefit that remains after he has paid the 98 per cent. rate of tax.

That is how investment income surcharge distorts saving. It has been argued from the Conservative Benches that it is quite wrong, for instance, that some of these large public service index-linked pensions are counted as earned income and are not subject to the investment income surcharge, whereas income from quite small sums of investment are so regarded. That kind of distinction is entirely wrong. A tax on wealth would be right provided we counted the wealth factor in the pension—calculated according to any actuarial principles—as wealth for taxation purposes. It would be far better to scrap investment income surcharge completely and to replace it with a tax on wealth. I hope that we shall move in that direction during the next year or two.

Meanwhile, I welcome any increase in that direction, and I therefore welcome the increase that is taking place here. It is a modest advance, but on this occasion it would not be right for the House substantially to increase the net take-home pay of people in this category at a time when we are doing everything that we can to keep total incomes down over the next year.

8.30 p.m.

Photo of Mr Geoffrey Howe Mr Geoffrey Howe , East Surrey

The hon. Member for Cornwall, North (Mr. Pardoe) has just given us an interesting insight into the process of self-torture that his party is inflicting on itself by its present parliamentary posture. We must look at the record aright. Two or three years ago, when the Liberal Party was in its halcyon days and held the balance of power in the House, the Liberals were proud to vote in our support, to precisely this effect.

Photo of Mr John Pardoe Mr John Pardoe , North Cornwall

It was a vote for me.

Photo of Mr Geoffrey Howe Mr Geoffrey Howe , East Surrey

I care not. I do not wish to have too much insight into the Liberal Party's anguish.

The parties joined together to vote for an amendment on investment income surcharge. My hon. Friend the Member for Horsham and Crawley (Mr. Hordern) referred to a speech in which the hon. Member for Cornwall, North announced his intention of doing such a thing again if the opportunity re-presented itself. To night the Liberal Party has within its grasp a chance of restoring the limit to £4,000. That is what the Liberal Party strove for, voluntarily, two or three years ago, yet it will not vote for the same proposal tonight.

The hon. Member for Cornwall, North has treated the House to an elaborate excursion into wealth and the investment income surcharge, but he is no longer in a position to stand up for the cause that he voted for then and that he presented to his electors because he is chained by the Lib-Lab pact. That has prevented him from achieving that which his electors and our electors want. United the Liberals and the Government totter, and united they will fall.

Photo of Mr John Pardoe Mr John Pardoe , North Cornwall

It is not a matter of my being chained at all but that I prefer, this time round, to reduce other taxes. That is the only choice that I have to make. The right hon. and learned Member for Surrey, East (Sir G. Howe) is free and irresponsible enough to want to lower every tax and we shall tot up the total number of taxes that he has advocated lowering during these debates.

Photo of Mr Geoffrey Howe Mr Geoffrey Howe , East Surrey

That argument by the Liberal Party is more bizarre than most of its others. The arguments are common ground on this side of the Committee, and we could carry them in the Division. Dividend restraint and investment income surcharge are repelling and destroying private investors' motivation. Investment income surcharge, as my hon. Friend the Member for Wycombe (Sir J. Hall) stated, is imposing an injustice upon pensioners. It is particularly unjust because 43 per cent. of the yield of that tax, as my hon. Friend the Member for Horsham and Crawley said, comes from pensioners.

I can join with the hon. Member for Cornwall, North, and my hon. and learned Friend the Member for Dover and Deal (Mr. Rees) in saying that the whole principle of investment income surcharge is increasingly questionable. The distinction was originally invented by the Liberal Party in about 1907, before Lloyd George moved into No. 11. It was probably invented by McKenna.

Photo of Mr Geoffrey Howe Mr Geoffrey Howe , East Surrey

Probably, but the Liberal Party during its time of activity made many mistakes, and it still does.

A distinction was made between the security and permanence of investment income and the insecurity and precariousness of income from employment. However, if one looks at what has happened to investment income during the last 15 years, because of inflation and the tax burden that has drawn it downward, the situation has become increasingly bizarre. Investment income surcharge was introduced when income tax was at a rate of 10 per cent. and when there was no capital transfer tax or capital gains tax. The principle should be re-examined in order to discover whether it should survive any longer.

That is why I invite my colleagues to support the amendment. We are confronted with a curious Government. Ministers repeatedly say that they want more employment and yet they clobber the employer; they say that they want more investment and yet they clobber the investors; they talk about an investment strike and cause an investment lockout.

Photo of Mr Denzil Davies Mr Denzil Davies , Llanelli

The hon. Member for Horsham and Crawley (Mr. Hordern) ranged fairly widely and covered the problems of dividend control, bemoaned the demise of the small investor and the increasing power of the institutions, and claimed that the Government were against savings. I suggest that perhaps the major reason that private investors are not very strong compared with institutional investors is the enormous tax benefit that Governments of both parties have given to institutional saving. It is largely because of these benefits that institutional investors have become so powerful.

In many other countries benefits for institutional savings are not so great and the tax reliefs are not so large. Consequently, the institutional investor is not so powerful. The situation is not quite as simplistic as the hon. Gentleman makes out.

Photo of Mr Peter Hordern Mr Peter Hordern , Horsham and Crawley

I am always grateful to receive advice from the Minister on these matters. Most institutions are concerned with regular savings in the form of pension contributions. These contributions are not voluntary. It is not that employees want to pay them: they are bound to do so. Institutional investment has grown because many pension funds have had to top up their savings because of inflation, and they are finding it increasingly difficult.

Photo of Mr Denzil Davies Mr Denzil Davies , Llanelli

The hon. Gentleman has not met my point—that because of the enormous tax benefits for contractual savings, institutions have grown increasingly powerful. This is part of their empire and they have an enormous vested interest in keeping it that way. In many other countries contractual savings are a lower proportion of total savings.

We have been told how the distinction between earned and unearned income was put into our law. I am not sure what the philosophical reasons were, but until 1972 or 1973 there was a distinction between earned and unearned income and no threshold on which the surcharge operated.

Governments of both parties—including Conservative Governments for a long time—have accepted that unearned income should be taxed more heavily than earned income and there was not even a threshold of relief. In 1973 the Conservatives finally plucked up courage and managed to slip through with their unification of surtax and basic rate tax and an exemption of £2,000. They did not have the political courage to do it before then, but Lord Barber saw the opportunity to slip it through without anyone noticing. In the Budget we are increasing the threshold to £1,500 for persons under 65 and £2,000 for those over 65.

I accept what the hon. Member for Wycombe (Sir J. Hall) said about the anomaly of pensions from institutional savings being regarded as earned income with no investment income surcharge being levied on them while a person who saves for his old age in some other way finds his income being treated as unearned. However, the amendment is not concerned with income from savings. It is concerned with investment income, whether derived from savings or from money accruing in any other way. It does not seek to isolate income from savings. I accept that there is an anomaly and it is partly to cover that that we have the exemption from surcharge for a certain proportion of investment income.

Photo of Sir John Hall Sir John Hall , Wycombe

I stress again that although the Government have now increased the amount from £1,500 to £2,000, it is still in real terms half of the value when it was first granted.

Photo of Mr Denzil Davies Mr Denzil Davies , Llanelli

I am coming to that. It has only taken it back to half of what it was. We do not entirely accept that the original levels were correct or right. But, leaving that aside, Conservative Members are seeking in the amendment the full indexation of the investment income surcharge threshold or relief. They sought in their last amendment to index the higher rate relief, but they have not got any further with their indexation. Unless they have changed it in the last day or so, the indexation of tax reliefs is not their general policy.

They have tabled no amendment to index personal allowances. They say that they want indexation for higher rate relief and to get the full benefit, or not to be subjected to the full rigours of inflation. They say that they want investment income surcharge to be fully indexed, but that is as far as they want to go. That is unfair. If they believe that indexation is right, they should say that they want it throughout the tax system instead of wishing to give the benefit to people who are better off.

This attitude betrays some of the anomaly in the Conservatives' argument. They want indexation only where it benefits most the people who tend to support them most. That is not the kind of approach that the Government believe to be right in the present circumstances.

The hon. Member for Cornwall, North (Mr. Pardoe) made the fair point that if we had a wealth tax, no doubt we would look again at the desirability of having an investment income surcharge. There were many arguments about this in the Select Committee and I was interested to note that so many Conservative Members are in favour of a heavy wealth tax. The hon. and learned Member for Dover and Deal (Mr. Rees), for instance, is in favour of this impost.

Photo of Mr Peter Rees Mr Peter Rees , Dover and Deal

Let me nail that canard at once. I have never put my name to any report whatever suggesting that there should be a heavy wealth tax.

Photo of Mr Denzil Davies Mr Denzil Davies , Llanelli

I accept that. I shall read again the minutes of the Select Committee proceedings and see what exactly was said.

Photo of Mr John Pardoe Mr John Pardoe , North Cornwall

The proposal was for a wealth tax with a threshold of £30,000. That is a very low threshold by comparison with the Government's £100,000, although not low by European standards. It was for a progressive wealth tax rising to 2½ per cent. on incomes over £500,000. A tax of 2½ per cent. is a heavy wealth tax.

Photo of Mr Denzil Davies Mr Denzil Davies , Llanelli

I am grateful to the hon. Gentleman. If we had a heavy wealth tax of that kind, the case would be even greater for considering whether it would be fair and equitable to have an investment income surcharge as well. That is a matter for the future. It was discussed by the Committee, and will no doubt be discussed here again and again in the future.

We accept the need for a threshold and that many persons who pay the investment income surcharge are not very well off. Others are. We think it is fair in present circumstances to raise the threshold to £1,500 and £2,000 respectively for people under and over 65. We do not believe that the indexation which the Conservatives desire is fair and right in relation to other taxpayers. I ask the Committee for that reason to reject the amendment.

Question put, That the amendment be made:—

The Committee divided: Ayes 194, Noes 237.

Division No. 130]AYES[8.44 p.m.
Adley, RobertHall, Sir JohnNewton, Tony
Alison, MichaelHamilton, Michael (Salisbury)Onslow, Cranley
Amery, Rt Hon JulianHampson, Dr KeithOppenheim, Mrs Sally
Arnold, TomHannam, JohnPage, John (Harrow West)
Atkins, Rt Hon H. (Spelthorne)Harrison, Col Sir Harwood (Eye)Page, Rt Hon R. Graham (Crosby)
Awdry, DanielHarvie Anderson, Rt Hon MissPage, Richard (Workington)
Baker, KennethHavers, Sir MichaelParkinson, Cecil
Bell, RonaldHayhoe, BarneyPattie, Geoffrey
Benyon, W.Higgins, Terence L.Percival, Ian
Berry, Hon AnthonyHodgson, RobinPeyton, Rt Hon John
Biffen, JohnHolland, PhilipPowell, Rt Hon J. Enoch
Biggs-Davison, JohnHordern, PeterPrice, David (Eastleigh)
Blaker, PeterHowe, Rt Hon Sir GeoffreyPrior, Rt Hon James
Bottomley, PeterHowell, David (Guildford)Pym, Rt Hon Francis
Bowden, A. (Brighton, Kemptown)Hunt, John (Bromley)Rathbone, Tim
Boyson, Dr Rhodes (Brent)Hurd, DouglasRawlinson, Rt Hon Sir Peter
Braine, Sir BernardHutchison, Michael ClarkRees, Peter (Dover & Deal)
Brittan, LeonJames, DavidRees-Davies, W. R.
Brocklebank-Fowler, C.Jenkin, Rt Hon P. (Wanst'd & W'dt'd)Renton, Rt Hon Sir D. (Hunts)
Brooke, PeterJohnson Smith, G. (E Grinstead)Renton, Tim (Mid-Sussex)
Brotherton, MichaelJones, Arthur (Daventry)Rhodes James, R.
Brown, Sir Edward (Bath)Jopling, MichaelRidley, Hon Nicholas
Bryan, Sir PaulKaberry, Sir DonaldRifkind, Malcolm
Buchanan-Smith, AlickKing, Evelyn (South Dorset)Roberts, Michael (Cardiff NW)
Budgen, NickKing, Tom (Bridgwater)Roberts, Wyn (Conway)
Bulmer, EsmondKnight, Mrs JillRossi, Hugh (Hornsey)
Burden, F. A.Knox, DavidRost, Peter (SE Derbyshire)
Canlisle, MarkLatham, Michael (Melton)St. John-Stevas, Norman
Chalker, Mrs LyndaLawrence, IvanScott, Nicholas
Churchill, W. S.Lawson, NigelShaw, Giles (Pudsey)
Clark, Alan (Plymouth, Sutton)Le Marchant, SpencerShelton, William (Streatham)
Clark, William (Croydon S)Lewis, Kenneth (Rutland)Shepherd, Colin
Clarke, Kenneth (Rushcliffe)Lloyd, IanShersby, Michael
Clegg, WalterLoveridge, JohnSilvester, Fred
Cockcroft, JohnMcAdden, Sir StephenSims, Roger
Cope, JohnMcCrindle, RobertSinclair, Sir George
Cormack, PatrickMacfarlane, NellSkeet, T.H.H.
Costain, A. P.MacGregor, JohnSmith, Timothy John (Ashfield)
Dodsworth, GeoffreyMackay, Andrew JamesSpeed, Keith
Douglas-Hamilton, Lord JamesMacmillan, Rt Hon M. (Farnham)Spence, John
Drayson, BurnabyMcNair-Wilson, M. (Newbury)Spicer, Michael (S Worcester)
Durant, TonyMcNair-Wilson, P. (New Forest)Sproat, lain
Eden, Rt Hon Sir JohnMadel, DavidStainton, Keith
Edwards, Nicholas (Pembroke)Marshall, Michael (Arundel)Stanbrook, Ivor
Elliott, Sir WilliamMates, MichaelSteen, Anthony (Wavertree)
Emery, PeterMather, CarolStewart, Ian (Hitchin)
Eyre, ReginaldMaude, AngusStokes, John
Fairbairn, NicholasMawby, RayStradling Thomas, J.
Falrgrieve, RussellMayhew, PatrickTapsell, Peter
Fisher, Sir NigelMeyer, Sir AnthonyTaylor, Teddy (Cathcart)
Fletcher, Alex (Edinburgh N)Miller, Hal (Bromsgrove)Tebbit, Norman
Forman, NigelMills, PeterTemple-Morris, Peter
Fox, MarcusMiscampbell, NormanThomas, Rt Hon P. (Hendon S)
Gardiner, George (Reigate)Moate, RogerTownsend, Cyril D.
Gardner, Edward (S Fylde)Molyneaux, JamesViggers, Peter
Gilmour, Sir John (East Fife)Monro, HectorWakeham, John
Glyn, Dr AlanMontgomery, FergusWalder, David (Clitheroe)
Godber, Rt Hon JosephMoore, John (Croydon C)Walker, Rt Hon P. (Worcester)
Goodlad, AlastairMorgan, GeraintWeatherill, Bernard
Gorst, JohnMorgan-Giles, Rear-AdmiralWells, John
Gow, Ian (Eastbourne)Morris, Michael (Northampton S)Winterton, Nicholas
Gower, Sir Raymond (Barry)Morrison, Charles (Devizes)Younger, Hon George
Gray, HamishMorrison, Hon Peter (Chester)
Griffiths, EldonMudd, DavidTELLERS FOR THE AYES:
Grist, IanNeave, AireySir George Young and
Grylls, MichaelNelson, Anthony Mr. Jim Lester.
NOES
Abse, LeoAtkins, Ronald (Preston N)Bidwell, Sydney
Allaun, FrankAtkinson, NormanBishop, E. S.
Archer, PeterBates, AlfBlenkinsop, Arthur
Armstrong, ErnestBean, R. E.Boardman, H.
Ashley, JackBeith, A. J.Booth, Rt Hon Albert
Ashton, JoeBennett, Andrew (Stockport N)Boothroyd, Miss Betty
Brown, Hugh D. (Provan)Horam, JohnPavitt, Laurie
Buchan, NormanHowell, Rt Hon Denis (B'ham, Sm H)Pendry, Tom
Buchanan, RichardHowells, Geraint (Cardigan)Penhaligon, Daid
Callaghan, Jim (Middleton & P)Hoyle, Doug (Nelson)Price, William (Rugby)
Campbell, IanHughes, Robert (Aberdeen N)Radice, Giles
Canavan, DennisHughes, Roy (Newport)Rees, Rt Hon Merlyn (Leeds S)
Cant, R. B.Hunter, AdamRichardson, Miss Jo
Carmlehael, NeilIrvine, Rt Hon Sir A. (Edge Hill)Roberts, Albert (Normanton)
Carter-Jones, LewisIrving, Rt Hon S. (Dartford)Roberts, Gwilym (Cannock)
Cartwright, JohnJackson, Colin (Brighouse)Robinson, Geoffrey
Castle, Rt Hon BarbaraJackson, Miss Margaret (Lincoln)Roderick, Caerwyn
Clemitson, IvorJeger, Mrs LenaRodgers, George (Chorley)
Cocks, Rt Hon MichaelJenkins, Hugh (Putney)Rooker, J. W.
Cohen, StanleyJohn, BrynmorRose, Paul B.
Coleman, DonaldJohnson, James (Hull West)Ross, Stephen (Isle of Wight)
Colquhoun, Us MaureenJohnson, Walter (Derby S)Ross, Rt Hon W. (Kilmarnock)
Conlan, BernardJones, Alec (Rhondda)Rowlands, Ted
Cook, Robin F. (Edin C)Jones, Barry (East Flint)Ryman, John
Corbett, RobinKaufman, GeraldSedgemore, Brian
Cowans, HarryKelley, RichardSelby, Harry
Cox, Thomas (Tooting)Kerr, RussellSheldon, Rt Hon Robert
Crawlord, DouglasKilroy-Silk, RobertShore, Rt Hon Peter
Crawshaw, RichardKinnock, NeilShort, Mrs Renée (Wolv NE)
Crowther, Stan (Rotherham)Lamble, DavidSilkin, Rt Hon John (Deptford)
Cryer, BobLamborn, HarrySilkin, Rt Hon S. C. (Dulwich)
Cunningham, G. (Islington S)Lamond, JamesSilverman, Julius
Davidson, ArthurLatham, Arthur (Paddington)Skinner, Dennis
Davies, Bryan (Enfield N)Lee, JohnSmall, William
Davies, Denzil (Llanelli)Lestor, Miss Joan (Eton and Slough)Smith, Cyril (Rochdale)
Davis, Clinton (Hackney C)Lever, Rt Hon HaroldSmith, John (N Lanarkshire)
Deakins, EricLewis, Ror Carlisle)Snape, Peter
Dean, Joseph (Leeds West)Loyden, EddieSpearing, Nigel
Dell, Rt Hon EdmundLuard, EvanSpriggs, Leslie
Dempsey, JamesLyons, Edward (Bradford W)Stallard, A. W.
Doig, PeterMabon, Rt Hon Dr J. DicksonStewart, Rt Hon Donald
Douglas-Mann, BruceMcCartney, HughStewart, Rt Hon M. (Fulham)
Dunn, James A.McDonald, Dr OonaghStoddart, David
Dunnett, JackMcElhone, FrankStott, Roger
Eadie, AlexMacFarquhar, RoderickStrang, Gavin
Edge, GeoffMacKenzie, GregorTaylor, Mrs Ann (Bolton W)
Ellis, John (Brigg & Scun)Mnckintosh John P.Thomas, Dafydd (Merconeth)
Ennals, DavidMcMillan, Tom (Glasgow C)Thomas, Jeffrey (Abertillery)
Evans, Fred (Caerphilly)McNamara, KevinThomas, Mike (Newcastle E)
Evans, Gwynfor (Carmarthen)Madden, MaxThomas, Ron (Bristol NW)
Evans, Ioan (Aberdare)Mahon, SimonThompson, George
Ewing, Harry (Stirling)Mallalieu, J. P. W.Thorne, Stan (Preston South)
Ewing, Mrs Winiftred (Moray)Marks, KennethTierney, Sydney
Faulds, AndrewMarshall, Jim (Leicester S)Torney, Tom
Flannery, MartinMaynard, Miss JoanTuck, Raphael
Fletcher, Ted (Darlington)Meacher, MichaelVarley, Rt Hon Eric G.
Foot, Rt Hon MichaelMendelson, JohnWainwright, Edwin (Dearne V)
Ford, BenMikardo, IanWalker, Terry (Kingswood)
Fowler, Gerald (The Wrekin)Millan, Rt Hon BruceWard, Michael
Fraser, John (Lambeth, N'w'd)Miller, Dr M. S. (E Kilbride)Watkins, David
Freeson, ReginaldMiller, Mrs Millie (Ilford N)Welsh, Andrew
Garrett, John (Norwich S)Mitchell, Austin Vernon (Grimsby)White, James (Pollok)
George, BruceMolloy, WilliamWhitlock, William
Gilbert, Dr JohnMoonman, EricWigley, Dafydd
Golding, JohnMorris, Alfred (Wythenshawe)Willey, Rt Hon Frederick
Gould, BryanMorris, Charles R. (Openshaw)Williams, Rt Hon Alan (Swansea W)
Gourlay, HarryMorris, Rt Hon J. (Aberavon)Williams, Sir Thomas (Warrington)
Graham, TedMoyle, RolandWilson, Alexander (Hamilton)
Grant, George (Morpeth)Murray, Rt Hon Ronald KingWilson, Gordon (Dundee E)
Grant, John (Islington C)Newens, StanleyWilson, Rt Hon Sir Harold (Huyton)
Grocott, BruceNoble, MikeWilson, William (Coventry SE)
Hamilton, James (Bothwell)Oakes, GordonWise, Mrs Audrey
Harper, JosephOgden, EricWoodall, Alec
Harrison, Walter (Wakefield)O'Halloran, MichaelWoof, Robert
Hart, Rt Hon JudithOrme, Rt Hon StanleyWrigglesworth, Ian
Hatton, FrankOvenden, JohnYoung, David (Bolton E)
Hayman, Mrs HelenePadley, Walter
Heffer, Eric S.Palmer, ArthurTELLERS FOR THE NOES:
Henderson, DouglasPardoe, JohnMr. Frank R. White and
Hooley, FrankPark, GeorgeMr. James Tinn.
Hooson, Emlyn

Question accordingly negatived.

Photo of Ms Audrey Wise Ms Audrey Wise , Coventry South West

I beg to move amendment No. 20, in page 11, line 20, at end insert 'provided that any income derived from moneys awarded as compensation damages and insurance in respect of industrial or personal accident or injury shall be treated as earned income and not as investment income'. I shall be brief, because this proposal should not be controversial.

It is clear that when a person is awarded a sizeable lump sum for an injury it is in nature different from a source of investment made by someone who has been able to save out of a large surplus income. It is different both in origin and in nature. I therefore ask my right hon. Friend the Financial Secretary to ensure that it is treated differently for tax purposes.

The proposal to treat such money as earned income rather than investment income so that it avoids the investment surcharge is equitable and should meet with a good deal of approval. A person who has had a bad injury, perhaps at work, and who in the normal course of events would not have a large lump sum available for investment may suddenly find that the income from his compensation award attracts the higher rates of tax applicable to someone living on unearned income.

I believe that the Financial Secretary may be sympathetic to the objective of the amendment. If so, I should appreciate it if he would try to meet us on this matter. At first glance it may seem difficult to distinguish between one kind of investment income and another. However, I suggest that account is already kept of what happens to investment income. For example, if investments are bought and sold, a record must be kept in order that capital gains tax may be recouped. My hon. Friends and I have taken some accountancy advice. We believe that it is possible to find a way to keep track of the income which derives from a compensation or other lump sum award.

If my right hon. Friend will meet us on this matter, we shall be pleased to seek to withdraw the amendment. He may wish to take it away and bring forward some other wording or to suggest another mechanism. However, if he feels unable to meet us we shall he compelled to push the amendment to a vote. It is an important point of principle. The effect of carrying the amendment would be to help a number of people who are already suffering misfortune because of serious accident or injury.

9.0 p.m.

Photo of Mr Robert Kilroy-Silk Mr Robert Kilroy-Silk , Ormskirk

I support my hon. Friend the Member for Coventry, South-West (Mrs. Wise) and I urge the Financial Secretary to give serious and sympathetic consideration to what she has said. She is talking about a group of people in different categories who already, through no fault of their own, suffer injury and distress. They are being penalised by a taxation system which most hon. Members regard as inequitable.

Their income is being taxed as investment income and it is subject to investment surcharge. Such income attracts higher rates of tax than are either proper or appropriate. There is no reason why they should not receive, and there is every reason why they should be able to receive, the maximum earned income tax allowances.

I hope that my right hon. Friend will reply in the spirit in which the amendment was moved. I hope that he will be able to give more positive guarantees than this Government and previous Governments have given so far. I hope that it will not be necessary for hon. Members who support the amendment to push it to a vote.

Photo of Mr Robert Sheldon Mr Robert Sheldon The Financial Secretary to the Treasury

The amendment seeks to exempt from investment income surcharge any income that arises from an investment of moneys which have been awarded as compensation for industrial or personal accident. My hon. Friend the Member for Coventry, South-West (Mrs. Wise) asked whether I was sympathetic to the amendment's objective. She does not need me to repeat that many people who are disabled—frequently for life, sometimes completely and sometimes partially—have a serious problem in adjusting to their future if compensation is their only form of income, apart from that which the State is able to provide.

I am sympathetic to the objective of the amendment, but there are a number of problems which remain difficult. My hon. Friend mentioned the possibility of obtaining outside advice. I believe that she has some matters on which she can inform the House. Perhaps we can hear about them at another stage. I must remind her of some of the problems of which I know she is aware. I shall examine them fairly briefly and explain them to those who are not as conversant as my hon. Friend with the subject.

The difficulty involves identifying the income arising from these awards. My hon. Friend mentioned the possibility of keeping track of capital. In that she is wholly right. Of course one can keep track of capital, even when it changes. If one changes the purpose of one's capital—whether to buy a picture, possibly, or a house, or investments—one can keep track of the varying use to which that capital is put.

The problem about investments is that when the dividends arising from them are taxed it is not possible to know through the multiplicity of changes that can take place from exactly where they come.

I give one simple example. It may be that a person in the category in question has other income. It may be that his investments are very successful and that they become enlarged. It may be that they diminish. However, the one common feature about them is that they change.

Photo of Dr Oonagh McDonald Dr Oonagh McDonald , Thurrock

My reason for intervening now is, first, to correct a statement that my right hon. Friend made. We have already taken advice on this point and have discovered that there are at least two ways in which the problem that my hon. Friend the Member for Coventry, South-West (Mrs. Wise) has outlined can be overcome. One suggestion is that the investment income deriving from an award as a result of damages for industrial accident or injury could be held in a separate account. The other suggestion is that the income from the original investment could be treated as the first part of any further capital that the individual may have available for investment.

I do not say that either of those suggestions will prove the best possible solution to the problem. I give them as illustrations of the fact that the problem was not thought to be a very difficult problem to solve when we sought financial advice about it. I am sure that if my right hon. Friend and his officials in the Treasury gave their minds to it for a short period they could find an adequate solution to the problems that he is detailing.

Photo of Mr Robert Sheldon Mr Robert Sheldon The Financial Secretary to the Treasury

I understand that point. I have thought about this aspect of the matter too. There is obviously the difficulty that if we were to lock such a person into a trust or some such arrangement, that might not necessarily be the best use of the money. There are problems of that kind. However, if my hon. Friend has details of the plans that she has worked out, she knows that I would be more than delighted to look into those aspects and see how far they can improve upon the kinds of methods that I believed were generally available to deal with that aspect of the problem.

Photo of Mr Geoffrey Howe Mr Geoffrey Howe , East Surrey

My right hon. Friend the Member for Wanstead and Woodford (Mr. Jenkin) and I, with some not very accurate recollection—perhaps the Minister will help us—believe that there has existed on the statute book a provision for giving special treatment to sums awarded by way of compensation, damages or otherwise, for personal injury. My own recollection is that there was a provision which exempted the income from such sums from aggregation with the income of parents when children's and parents' income was aggregated under a previous Labour Government. My right hon. Friend has the recollection that sums awarded by way of compensation for the effects of thalidomide were certainly exempted from aggregation under 1968 legislation. That is his recollection. My own thinking is that the provision had actually gone further, so as to exempt the income from taxation to some extent as well. However, it certainly looks as though this category of money has previously been defined and exempted on the statute book. Perhaps the Minister would care to look at those precedents.

Photo of Mr Robert Sheldon Mr Robert Sheldon The Financial Secretary to the Treasury

That was not the case, for the simple reason that before the unified tax structure came into operation there was earned income and unearned income. That is the position right up to now. The income was not dependent upon the category of people concerned; rather was it dependent on the type of income. If the income was earned through employment, it was treated in one way; if it was unearned, it was treated in another way. That was the sole basis and it remains so today. In fact, it was taken as being the case when the matter of the thalidomide compensation arose. In that case there was a particular problem whereby these people were settling on one basis of tax treatment and then they found that it was not the basis that they had understood in the kind of settlement to which they agreed. Because of possible tax implications, the Government at the time made a grant in order to overcome that problem. I speak from recollection, but I think that a grant of £5 million was made to avoid this kind of taxation problem.

My hon. Friends have taken some advice on this matter, and I would be very glad at any time to listen to that advice. The fact remains, however, that we have these two problems—the problem of separating earned income from investment income, and the point which I have made about the difficulty of being able to trace that income.

There is a third possible problem. I am not sure about it, for two reasons. I am not sure of the amount of weight that I can attach to it, and I have no close personal knowledge that I would like to have to use in an argument. The problem is that the courts themselves take taxation into account. Perhaps the changes being proposed in our taxation system would offset this difficulty, and I accept that this might be the case at this stage of consideration. Obviously, I am always happy to listen to further advice, and if my hon. Friends have any information for me perhaps we could take the matter up on that basis.

Photo of Mr Patrick Jenkin Mr Patrick Jenkin , Redbridge Wanstead and Woodford

I hesitate to intervene, but we seem to be drawing on recollections of previous occasions. My recollection of the thalidomide grant is that when the Family Fund was set up it was done because of the taxation problem. This was a valuable initiative by the then Government. It was taken by my right hon. Friend the Member for Leeds, North-East (Sir K. Joseph), who made the point that the Government had a responsibility in this regard.

My right hon. and learned Friend the Member for Surrey, East (Sir G. Howe) said earlier that when we considered in 1968 the last Labour Government's proposals for aggregating investment income for children we persuaded Ministers on the Treasury Bench to make an exception for income from compensation paid for personal injury to a child. That is not on all fours with the case that we are putting up now, but there is a case for the treatment of such income as earned rather than investment income. The Government should look at this. May be it does not constitute a precedent, but there is a precedent for different treatment of such income.

This is a cause which must engage our sympathies. As long as one has broad sympathy for the general issue, it is hard to say that income from compensation paid for industrial injury, or for injury caused by the drug thalidomide, should be treated as investment income and be subject to the surcharge. There is a precedent for singling it out for special fiscal treatment.

Photo of Mr Robert Sheldon Mr Robert Sheldon The Financial Secretary to the Treasury

I am not sure how much the right hon. Member for Wanstead and Woodford (Mr. Jenkin) has added to what I have already said. On the thalidomide case I was correct; the amount of the Government grant was £5 million, paid in 1974. The Government made a once and-for-all capital payment to the thalidomide children's trust which was specifically intended to increase the funds available to the trust to offset the effects of taxation. That is the problem. It is clear, however, that my hon. Friends have something new to add to the argument. I do not think that the comparison that the right hon. Member for Wanstead and Woodford drew quite meets the arguments of my hon. Friends.

9.15 p.m.

Photo of Mr William Wilson Mr William Wilson , Coventry South East

There might be difficulty in tracing income, where it comes from and where it goes to, when an individual has a multiplicity of sources of income and capital, but in my experience most of the people affected by the amendment will only ever receive one capital sum. Nothing could be easier than to set up a fund for that separate sum of money and for it to be earmarked.

I think my right hon. Friend is assuming that recipients of this sort of money possess a number of sources of wealth and that they are great wealthy people, but they are not. They have single items of capital paid to them, which remain with them, being dissipated as time goes by on ordinary expenses. From my personal experience, I can say that in most cases the problem would not be as great as the Minister is making out.

Photo of Hon. Nicholas Ridley Hon. Nicholas Ridley , Cirencester and Tewkesbury

I must confess that I agree with the Financial Secretary, that this is one of those rare occasions when I think that he might be on the right lines. That is not to say that I do not have enormous sympathy with the hon. Member for Coventry, South-West (Mrs. Wise) and share her concern entirely about the plight of these people. I have her point of view about the desirability of achieving what she seeks, but I also share the Financial Secretary's doubts about the difficulties of achieving it in the way that she suggests.

Let us consider the possibility that a fund is set up, which I think would have to be in trust if there were not to be some form of evasion. If it were not in trust, other people could lend to the fund and derive their income from it free of investment income surcharge—as it were, on the back of the previous payment of an injury compensation benefit. I think that that is the answer to the hon. Member for Coventry, South-East (Mr. Wilson)—that, although the person who suffered the injury might initially be in possession of no other funds, it is surprising how clever tax avoiders and other financiers would find a way of using that fund to their own advantage. So some sort of trust would have to be set up.

Moreover, it is not true, as the hon. Member said, that this is likely to be the only asset of the recipient of the income. In many cases he might have a house or be able to arrange a mortgage and be able to put the extra funds into the trust and derive extra income from the trust, thereby evading the investment income surcharge through the means suggested in the amendment.

Thus, there would be possibilities for tax avoidance not only for the parasite but for the recipient himself. There would have to be strict rules governing these trusts if they were to be proof against the sort of abuses that I have tried to describe.

Photo of Mr Robert Kilroy-Silk Mr Robert Kilroy-Silk , Ormskirk

The hon. Member is very good at finding problems and potential abuses when we are talking about our people, about poor people—about people, as my hon. Friend the Member for Coventry, South-East (Mr. Wilson) said, who get small amounts of money once in a lifetime after an injury when they have been disabled. Yet when the hon. Gentleman several weeks ago was talking about the self-employed and their inability to obtain a tax exemption certificate, he made light of the potential difficulties and abuses that we had pointed out and had no time for them. According to him, there were no problems and all the self-employed should have tax exemption certificates.

Is there not something of a double standard here? Is not the hon. Gentleman applying one set of standards to one category of people and a completely different set to those about whom we are talking, who are disadvantaged and unfortunate and at the lower end of the income scale?

Photo of Hon. Nicholas Ridley Hon. Nicholas Ridley , Cirencester and Tewkesbury

The hon. Gentleman is quite wrong. We shall be debating the tax exemption certificates on Thursday. If I have the good fortune to catch the eye of the Chair, I shall seek to say that the point of the regulations in respect of sub-contractors is not to avoid taxes but the fact that they take a view as to the suitability of the taxpayer. That is a new principle to which I strongly object.

The hon. Member for Ormskirk (Mr. Kilroy-Silk) has not heard me out. I am not out of sympathy with the aim of the amendment. I merely say that I do not think the hon. Lady is going about it in the right way. If she will hear me out, she will hear what I believe to be the right way to achieve her objective.

I cannot understand the proposition that recipients of industrial injury compensation are necessarily poor people. It may well be that the recipients of industrial injury compensation are from the middle income group or are very well off. There are many rich men who have been injured, as well as poor people.

It seems that there is an extraordinary series of demonologies in the mind of the hon. Member for Ormskirk. The hon. Gentleman seems to think that those who suffer industrial injury are by nature poor whereas all those who have investment income are by nature rich. That little thought might give the hon. Gentleman the clue to the answer that I shall give very shortly.

Before I seek to do that, let us pursue the thought of the trust. Let us suppose that there was a trust in which the sum of compensation was placed and that by good management by the trustees, or the injured person, there was investment in Poseidon. Let us suppose that the investor, or investors, got out at the right moment and put the money into Slater Walker, getting out at the right moment and ending up with investment capital of £10 million, having started, shall we say, with £5,000. Is the hon. Lady saying that the whole of the investment income from that sum should be free of investment income surcharge, bearing in mind that 10 years later the original sum had grown to £10 million or whatever the figure might be?

With my sayings on the record, that is a proposition to which I might not object so strongly as the hon. Lady. In fact, the hon. Lady is encouraging everybody to be a capitalist and to speculate with his capital. She is seeking to give a tax advantage as well. It might happen that the person concerned was not a very clever speculator and invested the whole lot in British Government War Loan and found that the original value of the money had decreased by a half or a quarter in real terms. However, the hon. Lady is encouraging speculation by her amendment.

This is not the way to do it. I never like to leave a question without seeking to be constructive. I suggest that the hon. Lady has come upon the inequity of the investment income surcharge when applied to those with low incomes. I do not know whether she was present during the last debate when by hon. Friends tried to raise the threshold of the investment income surcharge. In any event, I am sure that she voted against them. In fact, she should have voted with my hon. Friends, as they were trying to do exactly what she is attempting, only for a wider category of people than she has selected.

Surely the whole Committee will agree that her selection—the recipients of industrial compensation due to injury—are particularly worthy subjects to have relief from investment income surcharge. No doubt we all agree about that. However, there are some who feel that there might be other categories in receipt of investment income who deserve equal treatment.

Rightly or wrongly—I know that this is arguable—my hon. Friends believe that the right way to approach this matter is not to seek to find the source of the investment income but to seek to find the total resources of the recipient and to say where the resources are not very great—for example, £4,000 has been mentioned, but we could argue about that—and the investment income does not amount to a very great sum that it should be free from the surcharge. If she were able to accept that point of view, the hon. Lady would have been able to vote with us on the last amendment, thereby helping the people who are the subject of her own amendment, as well as a lot of other deserving cases.

The hon. Lady should put away her prejudices. She should put aside her belief that those suffering from industrial injuries are her own people, who vote for her and her party and therefore deserve special relief even from her prejudices. She should realise that the crucial point is the low level at which the investment income surcharge begins and change her views about the fundamental issue of taxation directed so much against investment income.

Photo of Mr John Mendelson Mr John Mendelson , Penistone

I rise in case my right hon. Friend the Financial Secretary is tempted to abandon the useful attitude that he was approaching earlier because of the mischievous intervention of the hon. Member for Cirencester and Tewkesbury (Mr. Ridley). My right hon. Friend adopted that approach to the simple, straightforward and honest amendment, moved so well by my hon. Friend the Member for Coventry, South-West (Mrs. Wise). He gave it, at least in principle, sympathetic consideration. I hasten to point out how misguided is the propaganda of the hon. Member for Cirencester and Tewkesbury. I want my right hon. Friend to support my hon. Friend instead of trying to catch her on the propagandist wave of the hon. Member for Cirencester and Tewkesbury, thereby trying to lead her into all sorts of postures that she might not want to support.

The burden of the amendment is that the majority of people who suffer industrial injuries are wage earners and are therefore not rich people; nor are they in possession of other resources.

Photo of Hon. Nicholas Ridley Hon. Nicholas Ridley , Cirencester and Tewkesbury

The North Sea oil divers probably run the most dangerous risks of anyone, but, at least until recently, they have been self-employed. They have very high emoluments. Are they in the hon. Gentleman's category of rich people?

Photo of Mr John Mendelson Mr John Mendelson , Penistone

The hon. Gentleman understands figures and he knows that the number of cases of that kind are infinitesimal compared with the large number of people who suffer industrial injuries in ordinary occupations throughout the year. I do not want my right hon. Friend to be encouraged by the hon. Gentleman's intervention. I want him to stick to his original attitude in support of the amendment.

When a person who has worked in industry for wages suffers a serious industrial accident, the payment of compensation to him enables him to have an income to take the place of the wages he would have earned had the accident not occurred. That limits the argument, the reasoning behind it and the equity behind it. It should not be beyond the wit of man—including the excellent advisers of my right hon. Friend—to find a way of limitation that would be satisfactory to all concerned. The argument that it really represents another wage, although our insurance laws are not based on that principle, should commend itself to him. I hope that he will now give an assurance that he will get together with my hon. Friend and do his best to see how it can be done.

Photo of Mr Robert Sheldon Mr Robert Sheldon The Financial Secretary to the Treasury

I assure my hon. Friend the Member for Penistone (Mr. Mendelson) that when the argument of the hon. Member for Cirencester and Tewkesbury (Mr. Ridley) came to the problem of tax avoiders I did not even consider it, let alone let it weigh heavily with me. Although one can admire the hon. Gentleman's ingenuity, the practicality of his suggestions does not have much bearing on the important matter we are discussing. In my earlier speech I gave way to what I thought were interventions and, therefore, I did not finish what I wanted to say. Instead I found myself, in effect, originating a debate.

9.30 p.m.

Perhaps I might end, as I had intended to do, by saying to my hon. Friend the Member for Coventry, South-West (Mrs. Wise) that I am delighted to accept the point she makes. She has given some good advice, and I am more than willing to listen to any advice from whatever quarter and to evaluate it. Bearing in mind the problems that I have mentioned, we can perhaps have some further consultations following the debate. I therefore ask my hon. Friend to withdraw the amendment.

Photo of Ms Audrey Wise Ms Audrey Wise , Coventry South West

I ought to deal with one or two of my hon. Friend's points. He mentioned the problem of altering the actions of judges with regard to the amount of compensation that they award. Once Parliament clearly indicated by passing this amendment that it wanted people who had suffered injury to benefit from this amendment, I would hope that judges would try to act in the light of that knowledge. It would be very unfortunate if they tried to thwart Parliament's intention and if they reduced compensation awards that is what they would be doing: they would be thwarting Parliament's intention of giving additional help to people in these circumstances. Although I have some scepticism about and natural suspicion of judges, I would rather give them the benefit of the doubt on this occasion and hope that they would take into account the clear intention of Parliament if an amendment like this were carried.

Another problem that my hon. Friend mentioned was that of distinguishing between any other earned income of the recipient and the investment income. I do not see that as a problem, because, if I understand my hon. Friend, the objective is to treat this kind of investment income as though it were earned income. It therefore does not seem to be a problem. The distinction between earned income and this kind of investment income cannot be insuperable since the objective is to treat them alike.

The only matter of substance with which we have to deal is the question of keeping track of the results of an award of compensation. If, for example, one of my hon. Friends were awarded £50,000, it should be possible for it to be deemed a special fund and be kept track of so that we could attach some sort of source to the income from that amount. Our tax system already copes with things that are more complicated. I am not surprised that we fail to collect corporation tax if we cannot deal with a relatively simple matter like this. If we cannot deal with that, I do not think that we can hope to deal with the complexity of taxing huge multinational companies.

Photo of Mr William Wilson Mr William Wilson , Coventry South East

I think the Minister has got the facts wrong about the allowance that judges make in respect of tax. When computing the loss of wages they certainly take into account the amount of tax that would have been paid upon those wages.

But my hon. Friend should appreciate that the Front Bench cannot have it both ways. If the Front Bench is saying that it cannot allow this tax relief which the amendment is seeking to give because it is so difficult to compute what might happen to the money, and if all the wisdom of the Treasury cannot compute that, how can a judge compute it? My hon. Friend the Financial Secretary has got it wrong. The wages that are represented by the award are what is taken into account, not the taxation that might be payable in future in respect of the award.

Photo of Ms Audrey Wise Ms Audrey Wise , Coventry South West

I am grateful to my hon. Friend the Member for Coventry, South-East (Mr. Wilson) for his intervention, and I take his point.

I think that we should ignore the wild imaginings of the hon. Member for Cirencester and Tewkesbury (Mr. Ridley), who seems to think that every person who is disabled in an accident and receives compensation automatically becomes a speculator and a tax avoider and evader. I believe that when someone suffers a severe accident—and it must be severe if it is to involve the sums we are discussing—he has quite enough to do coping with the ordinary problems of life.

Photo of Hon. Nicholas Ridley Hon. Nicholas Ridley , Cirencester and Tewkesbury

Is the hon. Lady aware that the largest amounts of compensation are usually paid to film stars who, perhaps, suffer an injury to a leg, which inhibits their power to earn hundreds of thousands of pounds a year? Does she realise that those are the people who would benefit most from the amendment she is proposing?

Photo of Ms Audrey Wise Ms Audrey Wise , Coventry South West

The hon. Gentleman is disgracing his colleagues. I thought that the interventions from the Opposition Front Bench were reasonable and helpful. It seemed to me that this was not a party matter but a subject on which we could combine to try to help people who are suddenly deprived, through an accident, of a limb or a faculty. It is disgraceful that the hon. Member should seek to turn people suffering in that way into some sort of petty criminals. He might in those circumstances bend his mind in that direction, but I do not believe that most of the disabled people in the country would do that. His interventions are mischievous and irrelevant and they expose his outlook. I am sorry that his Front Bench

Photo of Ms Audrey Wise Ms Audrey Wise , Coventry South West

No. I appreciated the interventions from the Conservative Front Bench because I thought that they were genuinely attempts to find a way round any practical problems that might exist.

If my hon. Friend the Financial Secretary is saying that he would like to try to meet the point of the amendment and will try to bring forward a proposal, I am certainly willing to accept that undertaking and perhaps to have some further discussion about it. I hope that we shall find a way of ensuring that people who have suffered injury, whether an industrial injury or any other—and that includes the effects of being attacked by criminals—are helped under the Bill. In those circumstances, I beg to ask leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Photo of Mr Tony Newton Mr Tony Newton , Braintree

I beg to move Amendment No. 22, in page 11, line 23, after 'more', insert: or in the case of a widow or single woman that her age was sixty years or more ' If I speak briefly to it, that is only because I have moved similar amendments on previous Finance Bills, and I hope to have further opportunities of raising similar points in Standing Committee. If I am brief, it will not be because I believe in any way that the point covered by the amendment is not important. On the contrary, the treatment of single women and widows between the ages of 60 and 65 gives rise to some of the more glaring injustices of our tax system.

The case for the amendment is overwhelming and conclusive. Within our tax system we acknowledge the case for favourable treatment for people over retirement age. There is a special age allowance in relation to their income as a whole—principally, of course, on their earned income—which was introduced under considerable pressure from this side of the Committee and other quarters two or three years ago. There is a special threshold for investment income surcharge, which is currently under debate and which the Government propose to raise from £1,500 to £2,000 for those who qualify.

That is all absolutely right and proper. I support it totally and I have urged before that we should have this special treatment for the retired section of the population. Many of us on this side would like to see these reliefs go further and become more generous.

The problem covered in my amendment is that when we come to define who should gain and who should not gain from the special concessions—which I take as being concessions for the retired—a form of male chauvinism takes over. The Treasury, the Inland Revenue and the law define the rule in terms of the age of 65, which is the normal retirement age for men. Instead of applying to women their normal retirement age of 60, the Government say that they, too, should receive the benefit of the additional tax reliefs only when they reach the age of 65. That is, we apply to women the normal male retirement age in allowing additional tax reliefs.

I have said previously in such debates that we drop single women and widows into a hole between the social security system, which treats them as retired at the age of 60, and the tax system, which treats them as being retired in this case at the age of 65. There is a five-year fiscal limbo into which we cast a substantial group of the population.

That is totally unfair, because in the world as it now is single women and widows of that age have already suffered a harder time than men of that age. Whatever the position may be in the new world of liberation and equality into which we are now moving, women now reaching retirement age tend to have had less earning power and to have been less able to save for their retirement.

Such women have laboured under disadvantages because of social attitudes in the past, attitudes that still linger to some extent, yet in addition to that we lumber them with this disadvantage. We do not allow them in their first five years of retirement the benefits that we think are proper for retired men within the tax system.

I said that this represents a form of male chauvinism, but it is worth registering how serious the anomalies can be. A man aged 50 or even 40 or 30 who happens to be married to a woman aged over 65 will get the benefit of this allowance because the law is defined in terms of a man or his wife living with him being over the age of 65. It does not matter how young the man is. Provided his wife is over the age of 65, he will receive additional tax relief on investment income, although a woman alone cannot receive that relief until she reaches the age of 65. One cannot be much more male chauvinist than that.

The situation is utterly unfair and I find it even more difficult to accept that it should be allowed to continue when I consider the triviality of the cost involved to put it right. That is especially so in the context of the debate that we had yesterday on petrol. When I raised this matter last year in two separate amendments—one dealing with single women and one dealing with widows—the Chief Secretary gave some figures of the cost of such relief. At that time the surcharge threshold was £1,500, so the figures are a little out of date, but the difference cannot be very great.

I was told that to extend the investment income surcharge relief to all widows—not just those over 60—would cost only £1½ million. To extend it to the other single women over 60 would cost £1 million. The money involved is peanuts in the context of the arguments that we have on this Bill and my proposal cannot be resisted on that ground.

9.45 p.m.

To be fair to them, I do not believe that Ministers would attempt to resist it on that basis. What other arguments do they have? It has been suggested that the real unfairness is in the difference in retirement ages. Treasury Ministers have said that I might have a point, but the real trouble is that women are allowed to retire too early or that men are made to retire too late and we should be equalising retirement ages.

I agree with that argument, but that is not what happens and we are treating women aged between 60 and 65 unjustly. The fact that we should like to see a change in retirement ages in the long term is neither here nor there. The logic of that ministerial argument is that the retiring age for women should be raised. That suggestion is not widely heard.

The widely heard suggestion is that the retiring age for men should be reduced. There is widespread support for that on both sides of the House. However, even at Question Time today Social Security Ministers were resisting any move in that direction on the ground of cost.

As long as Ministers are saying that it is not practicable to move towards what we should like to see in the social security system, it is up to them to deal with the parallel injustice in the tax system. I hope that we shall hear something more constructive from Ministers, because their arguments so far have not been good enough.

The only other point that the Chief Secretary put to me last year in a debate on roughly similar amendments was a virtual accusation that I was seeking to discriminate between different groups of taxpayers. That is standing the argument on its head. The Chief Secretary said: The best way to deal with the matter is to deal with it on income."—[Official Report, 11th May 1976; Vol. 911, c. 401.] That does not mean anything. How can we deal with the problems of retired women aged between 60 and 65 through dealing with their income? If that means anything at all, it must mean dealing with it through the social security system, and through their pensions. Can any Minister seriously claim that there is the slightest chance, prospect or justification for paying women aged between 60 and 65 a higher pension than we pay women over 65 in order to offset the effects of the tax system? That is the only thing that the Chief Secretary could have meant and it is nonsense.

Arguments against the modest cost that I am proposing do not stand up. The number of people involved in investment income surcharge cannot be large. The number of single women and widows aged between 60 and 65 is probably in the thousands rather than the millions or even hundreds of thousands. The numbers argument is much more important on the age allowance that we shall be debating upstairs.

However, the injustice is no less clear for the fact that it is a relatively limited point affecting relatively few people. It is part of the growing bitterness felt by widows and, to some extent, by single women in comparable circumstances about how our tax system treats them. It is difficult to defend.

I had hoped that we should see something done about this in the Budget, because earlier this year, for the first time in my experience, a Minister made a reasonably encouraging noise about it. I put this on the record because it is worth repeating to the Committee. I asked the Minister of State, Treasury: Is the hon. Gentleman aware that, apart from the disincentive to working widows, one of the most serious injustices in the tax system is the treatment of widows and single women between the ages of 60 and 65? Does he accept that something must be done about this problem? The Minister of State replied: The hon. Gentleman is right. The problem is most acute for those women aged between 60 and 65 because the age allowance is not available then. For women over 65 age allowances are quite generous and take widows out of the tax net. However, I accept that there is a problem for women aged between 60 and 65."—[Official Report, 24th February 1977;Vol. 926, c. 1620.] I was very glad when the Minister said that. I took it as a hint that the Treasury hearts might be about to soften in the couple of months before the Budget. I am very sorry indeed that they did not.

I hope that we shall have some sign from the Financial Secretary to the Treasury tonight that the Government will take another look at this matter, because I believe that there is great concern about it on both sides of the House. The way in which these women are treated is indefensible, and it would cost us very little to do a bit of justice in this matter.

Photo of Cyril Smith Cyril Smith , Rochdale

I support the case made by the hon. Member for Braintree (Mr. Newton). One of the principal reasons why I support him is that the proposal would do a little to alleviate discrimination against some widows and, indeed single women.

I should like to see the Government tackle the whole question of widows' benefits, tax allowances and so on and move towards a position in which we had a householder's allowance for tax purposes, irrespective of whether a person was widowed, single, married or anything else. The allowance would be paid because a person had to maintain a home and not because he or she happened to be married or single.

Widows get a very raw deal. The hon. Member's amendment would at any rate assist a small section of them. It is worthy of support if for no other reason than that. The older a woman is when she becomes a widow, the more difficult it is for her to adjust to new styles of living, income and so forth. There is great need, therefore, for the State to assist women who find themselves in that plight.

I compliment the hon. Member on having moved the amendment and for the manner in which he moved it. I hope that the Government will find it possible to make a concession in this matter. I hope that there will be a wider concession to assist widows generally, but at this stage it would be of great assistance if the Government were to help these particular widows between the ages of 60 and 65.

Photo of Mr Graham Page Mr Graham Page , Crosby

I support my hon. Friend the Member for Braintree (Mr. Newton). He has sought year after year to obtain this concession, and I hope that this will be a successful occasion for him.

This provision in our tax law might have been written by Lewis Carroll, Gilbert and Sullivan and the late A. P. Herbert all rolled into one. It is a most extraordinary provision that a man, whatever his age, will get the benefit of relief from the surcharge provided that his wife is over the age of 65. Could there be anything more foolish in our tax provisions than that?

We must add to that situation the fact that a widow or single woman who reaches the age of retirement at 60 is not entitled to this relief, whereas a man at retirement age is so entitled. In law we recognise the retirement age of 60 for women and 65 for men, yet we do not recognise it in this relief. Treatment of widows between the ages of 60 and 65 appears in this instance to be most illogical and unjust. It is extraordinary that year after year we should continue this discrimination.

It is true that a married woman does not reach the theoretical retiring age until her husband reaches 65. In other words, if she reaches 60 she is not entitled to consider that she has retired until her husband reaches the age of 65. However, that is not the case in this context. We are talking about widows and single women of that age. We are also talking about investment income, which in general means savings, and savings in the case of a widow or single woman of this age are far more difficult to achieve than for men. The present situation is a disincentive for such a woman to seek to provide for herself.

As was emphasised by my hon. Friend the Member for Braintree, the cost in this context is infinitesimal compared with the other matters which we consider in the Finance Bill. I hope that we shall right this injustice in the present Finance Bill. I hope that we shall do away with this "Alice in Wonderland" provision in relation to surcharge. Therefore, I warmly support the amendment.

Photo of Mr John MacGregor Mr John MacGregor , South Norfolk

I wish to support the amendment, with which I am associated. I support it, but I wish to add a caveat to which my hon. Friend the Member for Braintree (Mr. Newton) referred. In the long term we shall have to sort out the disparity as to the age at which men and women retire. It is clear that many women wish to continue working beyond the age of 60, and we have come to accept the concept of equality at work. I appreciate that pressure is now being mounted for men to be able to retire at the age of 60, but I tend to share the Government's view that in current circumstances this would be expensive. Since I am realistic, I do not see that aim being achieved for many years ahead. I believe that in the long run, however, this anomaly will have to be sorted out.

I was fascinated to read a recent pamphlet written by Mr. Michael Pilch of Noble Lowndes, who is a colleague of mine since I am involved in a company which is associated with his company. It was a pamphlet which Mr. Pilch wrote on his own account and in which he put forward suggestions by which we could move more flexibly to a situation in which it was possibile to deal with the transitional stage in arriving at a mutual retirement age. I am sure that we shall have to give more thought to this difficult problem in the coming years. That is my caveat—namely, that we should seek to obtain an identical retirement age but that it is a long way off. Meanwhile, we have to face the present anomaly.

10 p.m.

I support the amendment for two reasons. First, it is clear that the anomaly in the present state of the law concerning tax treatment and pension treatment must be cleared up. Secondly, there is the anomaly, which will apply for the next five to 10 years, in relation to the retirement age for women of 60 and beyond. I have great sympathy with this group of people for a wide variety of reasons. It is true that if only we could raise the tax threshhold much more significantly for all taxpayers—a point that we have argued in previous Finance Bill debates—the position of these widows would be much improved. I am sure that hon. Members on both sides will agree that we are constantly being berated by widows because of their tax position. If we cannot raise the tax threshold to the level that we should like, let us at least try to deal with this situation.

The reason why I have particular sympathy with widows and single women covered by this amendment and the amendment on age allowance that my hon. Friend is to move in Committee is as follows. Most young women, certainly before they marry, and many married women returning to work after having children find it easy to return to work, but the age group that we are talking about has found it difficult to do so. It was not normally the practice for them to obtain work. Work opportunities were much more limited than they are today, so they are probably very dependent not only on their widow's pension—much more so than later generations, who will have occupational pensions—but on such investment income as they can obtain, which has probably been raised through their husbands' savings in the case of the widows or their parents' savings in the case of the single women. Single women in this age group have probably not had a job for long in their lives. Not many years ago they looked after their parents until it was too late to obtain a job.

For those reasons, over the next five or 10 years, before we can sort out the whole pension situation, these groups will face particular difficulties. My hon. Friend is right to draw attention to this anomaly, and his amendment should be supported.

Photo of Mr Robert Sheldon Mr Robert Sheldon The Financial Secretary to the Treasury

We have had debates on this subject from time to time. They are always among the more difficult debates to reply to, largely because we are faced with anomalies of the type that the hon. Member for Norfolk, South (Mr. MacGregor) frankly recognised.

It is a little easier to reply to this amendment than some of the amendments put forward in the past which dealt especially with the problems of widows. With widows there is a dual problem—that referred to by the hon. Member for Braintree (Mr. Newton) and the emotional problem with which we are all familiar and to which there is no simple solution. Taxation can put right a number of things, but it cannot deal with some of the gravest problems that people face, such as the loss of a husband. This has usually been a complication when trying to analyse and discuss the matter dispassionately.

The amendment now before the Committee is much simpler than former amendments as it deals with women generally. Here we are discussing only the women's age and whether the ability to obtain the advantage of the higher investment income surcharge threshold should be given to them at their retirement age of 60 or, as in the case of men, at 65.

I remind the Committee that these problems have been with us for 40 to 50 years. The Royal Commission agreed that the age of retirement and the age at which women became eligible for other advantages should be regarded as separate issues. This is not simply a question of anomalies. It reflects the way in which social patterns are changing. The hon. Member for Norfolk, South made a brief reference to this. He understood that, fundamentally, what we do in any tax system is to reflect social circumstances and our attitudes to them. Inevitably in these matters there is a fair time lag in making tax changes consequent upon our perception of social circumstances. This problem becomes greater when social circumstances are changing.

The hon. Member for Norfolk, South referred to the way in which women are now able to claim greater equality. There will obviously be fewer problems in the future than there are today. He will be aware that certain problems pertain to this matter. I understand the point made by the hon. Member for Rochdale (Mr. Smith) about this matter and about householders' allowances. He will be aware that certain problems appertain to that matter.

The main problem is not only changing social circumstances, with which we have to come to grips, but the way in which men will perceive their position. At present men have to wait five years longer than women for their pensions. We know that men tend to live for shorter periods than women after retirement age. Men are increasingly aware of this factor. There is the further problem that, if men have to wait longer for investment income surcharge relief or any other kind of advantage than women, it might strain their patience even more.

The Government have to take account of the various social strands and try to produce equitable solutions. The hon. Member for Norfolk, South suggested that the only perfect solution would be for the retirement age somehow to be made the same and to reflect changing social circumstances. How much time lag there would be between the one and the other is a matter for argument. Some benefit from social changes much later than others.

Those are the problems facing us. In view of the difficulties, we might replace a lesser anomaly with a greater one. The hon. Member for Braintree was right to point to the anomaly that a woman retires at 60 years of age and does not get the invesment income surcharge relief until she is 65. If she were to get the relief at 60 years of age, that would reduce one anomaly but would create another. Both men and women at present qualify for the investment income surcharge relief at 65 years of age. If women were to qualify for relief at 60 years of age, that would create an another. Both men and women at present do not qualify for the relief between the ages of 60 and 65. It is oversimplifying the matter to say that we should reduce the anomalies. In one sense we should, but in another sense we should not.

Photo of Malcolm Rifkind Malcolm Rifkind , Edinburgh Pentlands

I am trying to follow the right hon. Gentleman, but I find it difficult to understand the strength of the argument that he is putting forward. Surely relief on investment income surcharge is given at the age of retirement for men because at that time—not before—they cease to have an income from earnings and become increasingly, if not entirely, dependent on income from investment sources. If that is the whole basis of the relief for men, given that many women are obliged to retire at 60, it would not be anomalous but would coincide with common sense to provide relief at 60.

Photo of Mr Robert Sheldon Mr Robert Sheldon The Financial Secretary to the Treasury

That is not the argument which has been put over by successive Governments. The argument has been that certain disadvantages are experienced by old people in their ability to carry out some of the everyday tasks that they have to undertake. It is right that there should be an increased allowance to take account of old age. That is not the same thing as retirement. We are talking of age. That is one of the problems that must be considered.

One can never say that the decisions that we take now are for all time. That is inherent in the nature of tax, which reflects social attitudes. However, even at this time of change in the circumstances which we have discussed, the present position should be retained. However, as I have said, these matters are examined from time to time.

Photo of Mr Graham Page Mr Graham Page , Crosby

Can the Financial Secretary say what the cost would be at present? The matter was raised by my hon. Friends and myself. It is important that the Committee should know what it would cost. If the sum involved is small, we hope that the Government will give way.

Photo of Mr Robert Sheldon Mr Robert Sheldon The Financial Secretary to the Treasury

I do not know the cost but it is unlikely to be large. It is difficult to estimate.

Photo of Mr Tony Newton Mr Tony Newton , Braintree

I do not wish to take up too much time. Much as I respect the Financial Secretary, his speech was a classic example of a Treasury Minister under pressure using words to cloak the absence of an argument. I sympathise with my hon. Friend the Member for Edinburgh, Pentlands (Mr. Rifkind) in saying that he could not follow the Minister. I doubt whether the Minister was following what he said himself.

My hon. Friend the Member for Norfolk, South (Mr. MacGregor) spoke cogently in support of the amendment. His argument was stood on its head by the Financial Secretary with all his waffle about social circumstances. We know that circumstances are changing and that the position of women between the ages of 60 and 65 may be different in 25 years' time. The whole burden of the argument, however, is that in the social circumstances as they are now the tax system should take account of them as they are now. If it did that, it would provide the advantages of tax relief for women between the ages of 60 and 65 and not refuse them until they are 65.

The argument that the decision is made on the ground of age and not of retirement is utterly ludicrous. There can be no justification for choosing to give special benefits to taxpayers at 65 other than that it is the normal retirement age for men. The normal retirement age for women is 60. We should recognise that and give the same tax allowances to single women and widows, instead of leaving them in a fiscal limbo until they are 65.

I shall not press the amendent to a Division, because we shall return to the matter upstairs in Committee when we consider the wider question. I serve notice to the Financial Secretary—and I speak for other hon. Members—that we shall return to this subject again and again until something is done or until we receive more sensible and acceptable answers.

I beg to ask leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Photo of Mr Jack Ashley Mr Jack Ashley , Stoke-on-Trent South

I beg to move Amendment No. 23, in page 11, line 23, after 'more' insert: 'or either he or his wife living with him was in receipt of invalidity benefit or non-contributory invalidity pension'. I shall make a short speech. The amendment is supported by the hon. Member for Exeter (Mr. Hannam).

The amendment extends to invalidity pensioners relief from the 10 per cent. investment surcharge on the first £500 of the excess above £1,500 of unearned income. I am not usually concerned with people who derive unearned income—normally I could not care less about their problems—but the amendment concerns a specific and particular point. I seek for disabled people a concession which is already enjoyed by old-age pensioners. Presumably on the ground that they no longer work, it is considered wrong to penalise them for having unearned income and that the penalty is less appropriate for old people. Exactly the same consideration applies to disabled people of normal working age who are incapable of working. Disabled people should be treated in exactly the same way as old-age pensioners.

10.15 p.m.

Retirement pensioners also enjoy relaxation of the earnings rule and investment income surcharge relief, but disabled people of working age have no such advantage, and if they earn more than £9 a week they lose their entitlement to invalidity benefit. Therefore, to tax this so-called unearned income at a higher rate than that applied to able-bodied contemporaries is quite unjustifiable. If the amendment is not passed, the discrimination against disabled people will be perpetuated.

The amendment would give only marginal relief. Its costs would be minimal, and the categories of people who would be most likely to benefit are those who are very gravely disabled and who are receiving compensation, such as thalidomide children, who are now reaching working age. It is important to avoid discrimination against people of that kind. Other disabled people who would be helped would be those who have been left a little money by anxious and harassed parents who have been concerned about what will happen when they die.

I should like the Minister to bear in mind that the possession of this small amount of capital by disabled people is likely to disqualify them from receiving supplementary benefit because the supplementary benefit system is designed to eat up that small amount of capital.

In conclusion, I believe that disabled people should be treated in the same way as elderly people who get extra tax relief because they cannot earn. Severely disabled people cannot earn either. Various representations have been made to the Treasury that disabled people should be helped in this way. The Treasury's reply is that disabled people should be helped through the social security system as tax relief does not help the poorest and is less flexible. That is a fine standard argument, but it does not take account of the fact that disabled people have received the compensation of which I am speaking because of their loss of earning capacity, and their compensation should be treated for tax purposes as earnings. It is quite unfair that they should pay more tax than someone who gets the same amount through unearned income.

The people in the Treasury are not the ogres that they are sometimes made out to be. They have a very difficult job to do. Everyone makes demands. I think that my right hon. Friend the Financial Secretary will recognise that, by and large, I support the people in the Treasury. I have said publicly and privately that I support the Treasury in its very difficult tasks. However, the point I want to make now, in addition to the point about helping disabled people, is that that support does not mean that one must become a voting zombie, and it must not entail automatic support for the Government. I propose, therefore, to press the amendment to a Division, conscious of the fact that many hon. Members have gone home already and that I shall not receive the support in the Lobby that the amendment ought perhaps to have. Nevertheless, I put forward the amendment with all the good will in the world, recognising the problems of the Treasury but hoping that my right hon. Friend will see fit to accept the amendment rather than to force a Division.

Photo of Mr Robert Sheldon Mr Robert Sheldon The Financial Secretary to the Treasury

My hon. Friend the Member for Stoke-on-Trent, South (Mr. Ashley) is one of the more beguiling Members of the House, and if I were able to assist him in his great campaigns there are few things that would give me greater pleasure. He has taken up a number of the most worthy and deserving causes that have ever come to the attention of the House. In his campaigns the House knows that he is eager to help and he seeks ways in which he can provide assistance to people who are the most unfortunate among our fellow citizens. He seeks to do that in every way he is able to pursue.

I do not think I am misrepresenting my hon. Friend if I comment that if there were better opportunities to help the people whom he wishes to help he might not regard this amendment as the most important method that he could use.

One of the things about the tax system is that it is a very crude instrument for providing direct assistance, which is the best form of assistance for people in greatest need. We have this difficulty about the use of the income tax system for social security purposes. One can find oneself constructing an enormously complicated and parallel system—and because it is parallel it is less useful—to duplicate the work of the social security system.

The main advantage of the social security system is that it gives the greatest help to those with the greatest need because it pinpoints and focuses attention in a much more refined way on the areas where need is greatest. However, the income tax system, being a much more diffused operation, assists those who have the most money to the greatest extent and those who need assistance least.

Photo of Mr Jack Ashley Mr Jack Ashley , Stoke-on-Trent South

I appreciate what my right hon. Friend is saying. Is he objecting in principle? I recognise the principle. Has he costed this exercise? If so, can he tell the Committee how much it would cost for the Government to accept the amendment, so that we may have some idea of the added magnitude? Is it principle or cost, or both?

Photo of Mr Robert Sheldon Mr Robert Sheldon The Financial Secretary to the Treasury

It is very hard to ascertain the exact amount, but I would not expect it to be large. But here we have the problem of bringing the investment income surcharge threshold into new areas, and there are a number of administrative complexities and disadvantages. It also has the real defect of helping only those who, by the standards that my hon. Friend is using, are not those with the greatest financial problems. They would need to have capital capable of generating £2,000 a year. The amount of capital required for that is considerable. Of course, it is unlikely that they will have capital for generating that income if, at the same time, they have used some of their capital on something like buying a house, for example. We are not talking about the main area of concern in which my hon. Friend is trying his utmost to help.

I am grateful for what my hon. Friend said about the Treasury, but in the end we have to concern ourselves with those in greatest need. There are those who are disabled but ineligible for benefit. A distinction would be drawn between such people and those whom my hon. Friend has in mind. Although I am happy to assist him whenever I can, I regret that on this occasion I am unable to accept the amendment that he has so movingly put forward.

Photo of Mr Jack Ashley Mr Jack Ashley , Stoke-on-Trent South

I greatly appreciate my right hon. Friend's speech. If anything could persuade me not to press the amendment, that speech would. However, I intend to press it, for good reasons. First, the thalidomide children are a special category of disabled and they are the main ones who would benefit from the amendment. Second, the Minister has admitted that it would not cost very much. Third, I do not believe that it would damage the Government in any considerable way if the amendment were passed. Fourth, I believe in the principle of helping specific groups with particular problems.

My respect for the Treasury grows. I have said some harsh things about the Treasury recently—some, but not all, of which I meant—but I now withdraw any personal attacks. Nevertheless, I propose to press the amendment in the spirit in which I have moved it and in which my hon. Friend has replied to it.

Amendment negatived.

Amendment proposed: No. 24, in page 11, line 25, at end insert: 'and(ii) the tax payable by an individual in respect of his earned income shall not exceed one half of such income.(2) For the purpose of subsection (1) above the tax applicable to a person's earned income is such proportion of the income tax (other than income tax at the additional rate) borne on his total income as his earned income bears to the aggregate of his earned income and his investment income, and for this purpose" investment

income" has the same meaning as in section 32 of the Finance Act 1971.

(3) For the purpose of subsection (2) above deductions from total income under Chapter 11 of Part I of the Taxes Act shall be disregarded and no reduction shall be made for any deductions of a type specified in subsection (3) of section 528 of the Taxes Act or under section 75 of the Finance Act 1972'.[Mr. Pardoe.]

Question put, That the amendment be made:—

The Committee divided: Ayes 16, Noes 199.

Division No. 131]AYES[10.31 p.m.
Carlisle, MarkMacGregor, JohnThorpe, Rt Hon Jeremy (N Devorn)
Cope, JohnNewton, TonyWigley, Dafydd
Durant, TonyPenhaligon, David
Evans, Gwynfor (Carmarthen)Ross, Stephen (Isle of Wight)TELLERS FOR THE AYES:
Grimond, Rt Hon J.Sinclair, Sir GeorgeMr. A. J. Beith and
Howells, Geraint (Cardigan)Smith, Cyril (Rochdale)Mr. John Pardoe.
Hunt, David (Wirral)Thomas, Dafydd (Merioneth)
NOES
Abse, LeoEvans, Fred (Caerphilly)Loyden, Eddie
Allaun, FrankEvans, Ioan (Aberdare)Luard, Evan
Archer, PeterEwing, Harry (Stirling)Lyon, Alexander (York)
Armstrong, ErnestFaulds, AndrewLyons, Edward (Bradford W)
Ashley, JackFlannery, MartinMabon, Rt Hon Dr J. Dickson
Atkins, Ronald (Preston N)Fletcher, Ted (Darlington)McCartney, Hugh
Atkinson, NormanFoot, Rt Hon MichaelMcDonald, Dr Oonagh
Bates, AlfFord, BenMcElhone, Frank
Bean, R. E.Fowler, Gerald (The Wrekin)MacFarquhar, Roderick
Bennett, Andrew (Stockport N)Fraser, John (Lambeth, N'w'd)MacKenzie, Gregor
Bidwell, SydneyFreeson, ReginaldMcMillan, Tom (Glasgow C)
Bishop, E. S.Garrett, John (Norwich S)McNamara, Kevin
Blenkinsop, ArthurGeorge, BruceMadden, Max
Boardman, H.Gilbert, Dr JohnMahon, Simon
Booth, Rt Hon AlbertGolding, JohnMallalieu, J. P. W.
Boothroyd, Miss BettyGourlay, HarryMarks, Kenneth
Brown, Hugh D. (Provan)Graham, TedMarshall, Jim (Leicester S)
Buchan, NormanGrant, George (Morpeth)Maynard, Miss Joan
Buchanan, RichardGrant, John (Islington C)Meacher, Michael
Callaghan, Jim (Middleton & P)Hamilton, James (Bothwell)Mendelson, John
Campbell, IanHarper, JosephMillan, Rt Hon Bruce
Canavan, DennisHarrison, Walter (Wakefield)Miller, Dr M. S. (E Kilbride)
Cant, R. B.Hart, Rt Hon JudithMitchell, Austin Vernon (Grimsby)
Carmichael, NeilHatton, FrankMolloy, William
Castle, Rt Hon BarbaraHayman, Mrs HeleneMoonman, Eric
Clemitson, IvorHooley, FrankMorris, Alfred (Wythenshawe)
Cocks, Rt Hon MichaelHoram, JohnMorris, Charles R. (Openshaw)
Cohen, StanleyHowell, Rt Hon Denis (B'ham, Sm H)Morris, Rt Hon J. (Aberavon)
Coleman, DonaldHoyle, Doug (Nelson)Moyle, Roland
Conlan, BernardHughes, Robert (Aberdeen N)Murray, Rt Hon Ronald King
Cook, Robin F. (Edin C)Hunter, AdamNewens, Stanley
Corbett, RobinIrvine, Rt Hon Sir A. (Edge Hill)Noble, Mike
Cowans, HarryIrving, Rt Hon S. (Dartford)Oakes, Gordon
Crawshaw, RichardJackson, Colin (Brighouse)Ogden, Eric
Crowther, Stan (Rotherham)Jackson, Miss Margaret (Lincoln)Orme, Rt Hon Stanley
Cryer, BobJenkins, Hugh (Putney)Ovenden, John
Cunningham, G. (Islington S)John, BrynmorPadley, Walter
Davidson, ArthurJohnson, James (Hull West)Palmer, Arthur
Davies, Denzil (Llanelli)Jones, Alec (Rhondda)Park, George
Davis, Clinton (Hackney C)Jones, Barry (East Flint)Pavitt, Laurie
Deakins, EricKaufman, GeraldPendry, Tom
Dean, Joseph (Leeds West)Kerr, RussellPrice, William (Rugby)
Dell, Rt Hon EdmundKilroy-Silk, RobertRadice, Giles
Dempsey, JamesKinnock, NeilRees, Rt Hon Merlyn (Leeds S)
Doig, PeterLambie, DavidRichardson, Miss Jo
Douglas-Mann, BruceLamborn, HarryRoberts, Albert (Normanton)
Dunn, James A.Lamond, JamesRoberts, Gwilym (Cannock)
Dunnett, JackLatham, Arthur (Paddington)Robinson, Geoffrey
Eadie, AlexLestor, Miss Joan (Eton and Slough)Rodgers, George (Choriey)
Edge, GeolfLever, Rt Hon HaroldRooker, J. W.
Ellis, John (Brigg & Scun)Lewis, Ron (Carlisle)Ross, Rt Hon W. (Kilmarnock)
Rowlands, TedStoddart, DavidWhite, James (Pollok)
Sedgemore, BrianStott, RogerWhitlock, William
Selby, HarryStrang, GavinWilliams, Rt Hon Alan (Swansea W)
Sheldon, Rt Hon RobertTaylor, Mrs Ann (Bolton W)Williams, Sir Thomas (Warrington)
Shore, Rt Hon PeterThomas, Jeffrey (Abertillery)Wilson, Alexander (Hamilton)
Short, Mrs Renée (Wolv NE)Thomas, Mike (Newcastle E)Wilson, Rt Hon Sir Harold (Huyton)
Silkin, Rt Hon John (Deptford)Thomas, Ron (Bristol NW)Wilson, William (Coventry SE)
Silkin, Rt Hon S. C. (Dulwich)Thorne, Stan (Preston South)Wise, Mrs Audrey
Silverman, JuliusTierney, SydneyWoodall, Alec
Skinner, DennisTinn, JamesWoof, Robert
Small, WilliamTorney, TomWrigglesworth, Ian
Smith, John (N Lanarkshire)Varley, Rt Hon Eric G.Young, David (Bolton E)
Snape, PeterWainwright, Edwin (Dearne V)
Spearing, NigelWalker, Terry (Kingswood)TELLERS FOR THE NOES:
Spriggs, LeslieWard, MichaelMr. Thomas Cox and
Stallard, A. W.Watkins, DavidMr. Joseph Ashton.
Stewart, Rt Hon M. (Fulham)White, Frank R. (Bury)

Question accordingly negatived.

Clause 15 ordered to stand part of the Bill.