Orders of the Day — Finance Bill – in the House of Commons am 12:00 am ar 16 Gorffennaf 1974.
I beg to move Amendment No. 120, in page 4, leave out lines 9 to 17 and insert:
(B) in respect of so much of the investment income included in an individual's total income as exceeds £2,000, at the additional rate of 15 per cent.'
With this amendment, we are to discuss the following:
I can understand the mistake of the hon. Member for Worthing (Mr. Higgins) in rising to move this amendment. He will have recognised the familiarity of it, because it is the amendment which he moved in Committee and which I supported.
The Chancellor, who is just leaving the Chamber, will be sorry to hear that this will cost a little money. But all the best things in life and in Parliament do. This is about investment income and whether the Government are right to bring down the relief for what some people would call small savers, but what I will content myself by calling those who are not big savers anyway. At the outset I ask why it is that we make these distinctions so that we may get clear in our minds why we differentiate between so-called investment income or savings income and so-called earned income.
Savings income can come from many different sources. [Interruption.] If the money comes from inherited wealth then I believe that to tax money deriving from that inherited wealth at an exceptional rate is probably reasonable. To a large extent in this amendment we are dealing with those whose income comes from their life-long savings. [Interruption.] It seems that it is better to deal with inherited wealth—
Order. May I plead with the House for silence so that the hon. Member may move his amendment.
I am grateful to you, Mr. Deputy Speaker. It seems that it is better to deal with the problem of inherited wealth through the reform of such things as the inheritance tax and the introduction of a wealth tax, which I believe the Government are eventually to introduce. If the savings income derives from capital which has been saved out of income, then these savings might have had some measure of income tax relief on the way as, for example, with income deriving from an insurance policy. The premiums would have had some tax relief.
If the savings from which the income derives come from, for instance, buying shares then they have come completely out of taxed income, with no tax relief at all. The income may come from so-called savings that are derived entirely from the effects of inflation. In that case I would not have thought that there was any reason to argue for a separate investment income surcharge. Most rates of interest these days are negative rates because of inflation. Unfortunately unearned income tax does not distinguish between real and money profits. I ask the Government to consider in their reply the effects of inflation on unearned income.
For instance, a man who lends £1,000 for a year at 10 per cent. should at the end of the year have £1,100. If no inflation was taking place his wealth would have increased by £100 and he could count this as part of his real income. If inflation of 5 per cent. is taking place the final nominal wealth at the end of the year is only £1,050. His real income is £50 not £100. The difference is the addition to his nominal wealth which is required to maintain its real value.
I would have thought that the Government would wish to redistribute income, perhaps as part of the price of the social contract. I hope that they wish to dis If we are in the business of redistribution we ought to be endeavouring to redistribute real income not money income. tribute real income and real wealth, not phoney income and phoney wealth.
It is not possible to sweep away the whole of the investment income surcharge in one Budget. I hope that the Government will do so if they introduce a wealth tax. I hope that they will then abolish the investment income surcharge, capital gains tax and death duty and replace the lot with an efficient wealth tax on real wealth and not inflationary wealth. This is certainly not the time for the Government to bring down the level above which a special small income relief obtains.
11.0 p.m.
I find it incredible that the Government should have done this as part of its social contract. These are not wealthy people. They are not people who ought to be asked to pay the price of the social contract. This change will do considerable harm to savings. It will sweep away any incentive to save at a lower income level. The amendment provides a limited improvement. It is not a very expensive improvement. I hope the Government will accept the amendment.
I rise to speak about the amendment moved by the hon. Member for Cornwall, North (Mr. John Pardoe) and to support Amendments Nos. 113 and 114 standing in the names of my hon. Friends and myself.
All the amendments tabled in Committee and today have basically the same objective. They constitute an extremely important set of amendments. The proposals which the Chancellor of the Exchequer put forward in his Budget were to reduce the amount which my right hon. Friend the Member for Altrincham and Sale (Mr. Barber) had previously suggested should be the limit below which investment income—that is to say income from past savings—should be charged, namely, at the earned income rate rather than at the so-called unearned income rate. The purpose of these amendments is to restore the position to what it was under the previous Conservative Government and before this Budget.
It is very important that these amendments should be put forward and carried. First, they encourage savings. There is no matter more important in the present economic situation. We should do everything we can to encourage savings.
I think the House will wish to attach importance to my second point. A number of people living on fixed incomes have been those worst hit by inflation. It is therefore extremely important that we should not attack this group, as this Budget has done, and add the problems of increasing taxation to the problems of inflation.
I agree that many of these people are not wealthy. The limit set by my right hon. Friend the Member for Altrincham and Sale was far from generous. To cut it further will affect a large number of people, many of them retired for a considerable period, living on incomes from savings.
From our constituency experience we know that a great many of these people suffer a very real decline in their standard of living. They have done so over a period of time. The Government's proposals will add to their problems. It is right that we should move these amendments on this occasion to recognise the problems which they face, which get worse as the rate of inflation, under this Government, increases. Therefore we seek to help people living on fixed incomes in one of the few ways open to us. Many of them have benefited from the increased national insurance pensions. None the less, the purchasing power of their total income, including the savings income which they already had, has declined steadily and is now declining faster than ever before.
Therefore I ask my hon. Friends to support the amendment—if necessary, since that is the one selected, the Liberal amendment—which is the same in substance as that which we have moved on previous occasions. I hope that my hon. Friends will join me in the Division Lobby with that object in view.
We are coming to a very important and interesting stage in the Bill. We had better recognise that, when all the talk and excuses for the amendment have finished, the Opposition—Conservative and Liberal—are proposing to give £40 million in tax relief to those with investment incomes above £1,000 a year. [Interruption.] I am sure that it will be noted outside. I do not pretend that these people are wealthy, but if £40 million of tax relief is to be given, it should be a matter of priorities who should get it. Do we give the £40 million to those with investment incomes of more than £1,000 a year or to the more deserving of whom we know?
I have no intention of suggesting that the House should accept the amendment. I am absolutely astonished that the joint Opposition, if I may put it that way, are prepared to vote for this £40 million, for £120 million on the last amendment, for £15 million on the amendment before that and for £300 million on an amendment that they have tabled for tomorrow. Presumably they mean it. Otherwise, I do not know why they tabled it. That is a total of nearly £500 million.
I assume that among hon. Gentlemen opposite who intend to vote for the amendment are those who have told us that we should not reflate. They are now suggesting not only that we should reflate but that we should reflate in a specific way which will give an increase in income to those with the lowest priority.
rose—
There will be plenty of opportunities to debate these matters at the hustings very soon. We are delighted that both Oppositions have decided on their priorities. They are not our priorities. Without wasting any further time, I ask my right hon. and hon. Friends to vote against the amendment.
I rise for only a moment, to point out two matters of real interest about the extraordinary speech of the Chief Secretary, to which we have just listened, echoing, as best he can, his master's voice.
The first was his utter refusal to give way and discuss anything in the House of Commons. He would rather retain his remarks for the hustings, where the lack of sense about certain matters will be less obvious.
The second was the interesting comment that he made, or appeared to make, at the beginning of his remarks, to the effect that anybody with an income of more than £1,000 a year—[Hon. Memmers: "Unearned."]—I know of this favoured discrimination, which the Labour Party loves so much. The hon. Gentleman said that anybody with that kind of inordinate wealth should not be entitled to any consideration at all. In other words, we reach the conclusion that, after a few more years of Socialist Government—
Which we shall have.
This country has not gone wholly mad yet.
After a few more years of Socialist Government the end and the purpose would be to confine people to this kind of miserable pedestrian living which hon. Members opposite like so much.
We are facing an extraordinary situation in which Opposition Members are in a position to carry any amendment which they move. They therefore have power, and they do not exercise responsibility.
The position is that under the Finance Bill at this stage it is impossible to increase taxation. All we can do is to lessen the burden of taxation. If hon. Members opposite are serious about talking of a financial crisis, or of a serious economic situation—and as the Chancellor, at the same time, has pointed out the need to balance the Budget or to limit the excess of public expenditure over income—they should consider the consequences of the actions in which they are now indulging.
There may be merits for some of these amendments, but on the last occasion £120 million was removed from taxation. It is unusual at this stage of the Finance Bill for Opposition Members to vote to reduce the Budget by that amount. This is not a minor amount. It is £40 million, and with the other £14 million we have a total of £170 million off the previous sum.
That is not a light matter. I hope that a number of Opposition Members will take this to heart, realise what they are doing, and absent themselves from the Lobby, so that the amendment is not carried.
I did not intend to intervene, but the Chief Secretary has referred to his lowest priority. It should be clearly understood whether, by that, he means those who have savings income earned by working hard all their lives. He referred to investment income, which is savings that have been invested. The Clause applies to those who worked hard all their lives, and if the Chief Secretary says that it does not apply to those who have saved sufficient to get an investment income of this kind he should say so in the Bill. He referred to people of lowest priority.
The clause will include those who have worked hard all their lives to put aside part of their earning for their old age—for a savings or investment income of £1,000 a year. He also referred to giving to these people. It should not be necessary to remind Treasury Ministers that they would not be giving but refraining from taking away. The Chief Secretary should recognise that.
I much regret that the Chief Secretary has not addressed himself to the main arguments put in the debate. He seems to have disregarded the commitment on the Floor when this clause was discussed, when the Financial Secretary, in response to many speeches from the Opposition, undertook to consider carefully the position of many people who have retired on a modest investment income which they have saved all their lives to achieve. They are not entitled to national insurance pensions or other sums which are to some degree inflation-proof. The hon. Gentleman said that we were suggesting that something should be given back to these people. We are in fact saying that the Bill is taking from people who are already suffering the effects of inflation.
I hope that before the end of the debate the Chief Secretary will address himself to our remarks, which concern people on modest incomes, who have saved hard all their lives and who will be penalised by this increased taxation.
The hon. and learned Member for Lincoln (Mr. Taverne) echoed the Chief Secretary's remarks in suggesting that the amendment was a late afterthought by the Opposition. He implied that having suddenly found ourselves with the power to rewrite the Finance Bill—as we do, because of mismanagement by the Government—we were making ill-considered changes, with unfortunate and inflationary effects. In Committee on the Floor of the House this part of the Bill was singled out for attack by the Opposition. I am sure that my hon. Friends and the Liberal Party are making a careful choice of priority in forcing the amendment on the Government.
At the last Labour Party Conference, the present Chancellor said that a Labour Government, if elected, would make the rich squeal. The Budget and the Bill show that their interpretation of making the rich squeal is in fact mean-minded legislation against people with comparatively modest incomes derived from savings. People with investment income below £2,000 are not the very rich. Of course they are better off than many because they have carefully provided for their retirement, but in these inflationary times and with the present rates of interest, income of the sort affected by the Government's proposals can be realised from a capital sum of £8,000 or £9,000. To say that a man who has managed to save that sort of sum during his working life deserves punitive taxation is ridiculous.
I throw back what the Minister said about inflation and ask him to accept his responsibility to minimise its effects on the groups most adversely affected. No group has been more adversely affected than those who depend on their savings income when they find that it is not inflation proof and that its real purchasing power has been sadly reduced. At a time like this, for the Government to propose increasing punitive taxation on savings income simply because they have a prejudice against those with the good fortune or thriftiness of habit to provide for their retirement—
The hon. Member should have said "hard work".
—and hard work, of course—is the most irresponsible behaviour. We want to protect particularly those who have retired against the ravages of their savings income that the Government would produce. We do not accept that this is irresponsible, ill-considered behaviour. We have carefully considered this priority and believe it is the right one. If the Chief Secretary re-reads the reports of the Committee debates he will discover the arguments that have brought us to the amendment.
I shall not detain the House for long. I certainly do not wish to address my remarks to the Government Front Bench, and certainly not to the Chief Secretary, with his contemptuous attitude towards every argument that has been advanced from the Opposition side of the House and the contemptible way in which he stated that people with a savings income of £1,000 a year were the lowest priority of all. I certainly do not intend to respond to that sort of approach.
I intend to address my remarks to the only serious argument that we have heard from the Government side of the House, which was advanced by the hon. and learned Member for Lincoln (Mr. Taverne). The amount of £120 million is a deceptive figure. We were told first that it might be £50 million, or it might be £120 million. It has no impact during the present fiscal year, despite what the Chancellor tried to pretend to the House about the borrowing requirement for this year or about demand this year.
I do not know whether hon. Members on the Government side understand the position, but the matter concerning that tax is in dispute. We have been told by the Financial Secretary that there is first to be an appeal by the Customs and Excise against this and that if that appeal goes against the Customs and Excise there may be an appeal to a higher court. If that still goes against the Customs and Excise, there will have to be a vetting of every claim by a retailer for repayment, and at the end of the day it will have to be decided which customers should get back that tax. Therefore, it would be years before this would have any effect on demand, on the monetary situation, or on the borrowing requirement. We can dispose of that argument.
What we are left with is the figure of £14 million from a previous amendment and £40 million if the amendment is carried—a total of £54 million. It is perfectly open to the Chancellor—I hope that he will take the opportunity—to cut public expenditure by an equivalent amount. He can announce the cut when he introduces his mini-Budget next week. Some of us would like him to do that, as he has expressed such concern about any increase in the borrowing requirement. Some of us wish that he would reveal to the House by how much he has increased the borrowing requirement this year by increases in public expenditure since the Budget. He has done it by a consider- able amount. He should come clean about this matter.
However, we are now talking about a very much smaller sum than the hon. and learned Member for Lincoln thought we were talking about. This is important, because we on the Opposition side of the House wish to be responsible.
Tell us about your house.
This is a very serious matter, and that is why the amendment should be carried. The overall budgetary situation, the overall financial judgment and the overall borrowing requirement will not be thrown out of kilter by the amendments that have passed today. I find it will be thrown out of kilter by what the Chancellor has to announce next week.
So has every hon. Member.
Mr. Adley:
I tell the Chief Secretary that I have every right and intention of fighting as hard for the rights of my constituents as he fights for the rights of his. I have many thousands of constituents who are old, who have worked hard and served their country, very often abroad, for many years, and who are now retired and are desperately trying to retain a standard of living for which they have worked and to which they have grown accustomed. They are finding it exceedingly difficult. I have pledged myself to do everything I can to support their efforts to retain a reasonable standard of living. I will not accept from the Chief Secretary suggestions that my constituents are any less justified in wanting to protect their standard of living than anyone else in this country.
I take up a point made by the hon. and learned Member for Lincoln (Mr. Taverne) when he suggested that the Opposition bore responsibility in this respect. We are sensible of the power the people put in the hands of the elected Members of this House at the last election. If he and Labour Members are as concerned as he gives the impression they are, the solution may well be that the Chancellor and his right hon. Friends should invite Members of other parties in the House to advise them so that the Government may be sure that a proper degree of responsibility is exercised by all hon. Members.
The relative position of the people we are talking about is that much worse than has been explained so far because they have a small sum of capital savings or investment and they are debarred from all forms of means-tested benefit. Therefore, with every fresh means-tested benefit evolved by those of us who seek to direct the help to those in greatest need the position of these people is made that much worse.
With the leave of the House, I seek to reply to the debate. I am only sorry that the Chief Secretary did not answer the arguments adduced in favour of the amendment, or debate the question of investment income surcharge versus other forms of income tax. I simply ask him why the Government changed the threshold. They have never made a case for doing that. This is no time—in an inflationary situation—to lower the income tax threshold, but that is what they have done. As for the hon. Gentleman's point about priorities, I can say only that this is not the most important way in which we can spend f40 million. He must bear in mind, however, that not all of our amendments are selected for debate. I prepared and tabled amendments in Committee and on Report to change the whole basis of tax allowances for children and to increase family allowances in exchange for that proposal. That would have been redistributive in a way that I would have thought would appeal to the Government. The amendments were not debated, and there are many other such proposals on which I would have much preferred to spend the money than on the amendment now being discussed.
I want to reply to the important point raised by the hon. and learned Member for Lincoln (Mr. Taverne). I hope that he will accept that I do not regard this amendment or the others that we have supported this evening as being in any way irresponsible. The hon. and learned Gentleman put forward serious and important arguments, and they have been made in the House before. They were made well before King Charles lost his head. The argument whether Parliament or the Government were able to raise taxation was carried on repeatedly then. We are not going outside the remit of our responsibilities, nor are we exceeding our duties in controlling the Government's means and methods of redistributing the burden of income tax. If the Government think they have some God-given right to distribute or redistribute the burden of income tax, they must accept that Parliament controls that and that we are exercising that power. The fact that this is the first Parliament since the war which has had the votes and the power to do it is neither here nor there. The hon. and learned Gentleman must realise that we approach the situation of this Government with great responsibility. [Interruption.] Yes, indeed. Hon. Members opposite must get used to the new rules of the game called minority government. That means that no Government can steam-roller their ideas through the House without trying to convince, argue and persuade.
11.30 p.m.
We offered this Government, as we offered the Government—had there been one—of the Leader of the Conservative Party, support from the back benches on an agreed programme. The Prime Minister turned that offer down. The answer to the Chief Secretary and to the hon. and learned Member for Lincoln is this: yes, indeed, the Government could have brought forward an agreed Budget and we would have supported it had they consulted us in the first place. That is a perfectly legitimate way of running a minority Government.
The Government did not accept that offer. Because the Government did not accept that offer, we are now asked to take the Government's proposals and their Budget, lock, stock and barrel. We are not taking the Government's proposals, lock, stock and barrel. They have not argued the case. We intend to press the amendment.
I beg to move, That further consideration of the Bill, as amended, be now adjourned.
I think the House will agree that we have made some remarkable progress.