Mrs. Margaret Thatcher (Finchley)
I feel in two minds about being asked to follow a man who has described his friendship with a gamekeeper, particularly as he described it in such graphic terms, using four and five letters words. Therefore, it might well be proper if I do not follow him too closely in his excursions to the Continent. I hope that he will forgive me if I do not follow his argument, but I have a number of points which I wish to make which have not been gone into in detail before in the debate.
First, I should like to deal with the question of a capital gains tax. My purpose is to make clear the extent to which the Inland Revenue already has powers to deal with speculators—powers which, I believe, are not fully used at present. These powers come under Case 1 of Schedule D, and it is settled law that a person who speculates in land is taxable as a dealer and not as an investor, so that the profit taken from the result of his annual transactions is liable to Income Tax.
When the first Royal Commission on Taxation of Profits and Income reported on this matter, in 1920, it was not then settled that a single isolated transaction by way of sale of land could be treated as a taxable transaction, but since that time it has been established that one isolated sale of land can be an adventure in the nature of trade, and can give rise to Income Tax in the ordinary way.
There is nothing to limit that principle to land. Indeed, it has been extended in many settled cases to include commodities. It has also been extended—this was decided by the Court of Appeal as far back as 1944—to where a person, in trying to sell land, endeavours to do so by way of putting that land into a separate company and selling the shares instead. The profit on the sale of shares is likewise taxable as an adventure in the nature of trade.
That was decided, in a judgment delivered by the then Master of the Rolls—my hon. Friend A. Barberthe Economic Secretary will be familiar with it—in the case of Associated London Properties v. Henriksen and that case has never, to [column 1227]my knowledge, been used again by the Inland Revenue. Many hon. Members who have professional contacts with tax matters must know that they have frequently advised, in certain tax schemes, that they depend on the fact that the Inland Revenue will not invoke that case.
I do not know why it has never been invoked, but the average person does not realise the extent of the powers which the Inland Revenue already possesses to tax speculators in land and shares. I do not believe that these powers are being used to the maximum. All that the Inland Revenue has to do is to raise an assessment, and it is the easiest thing in the world for a member of the Inland Revenue office to sign an assessment. It is not then up to the Revenue to prove that assessment; the onus is on the citizen to prove that the assessment is false. Thus, the Revenue has very extensive powers indeed.
My right hon. and learned Friend Jelwyn Lloydthe Chancellor of the Exchequer made a small reference to these powers being extended to a greater extent in future. I welcome that, because it is the speculator in shares that we want to get at—the person who is making a business of buying and selling shares, not to hold them for their income producing properties, but to live on the profit which he makes from the transactions. That is the person most of us would like to get at, and I do not believe that there is need for any change in the law at the moment to enable us to do so.
Certain aspects of the revenue law were suspended for ten years on the directive of a former Chancellor, and this was called the “Chancellor's umbrella” . If such a directive can result in the suspension of certain aspects of the revenue law for about ten years, then one hopes that a warning from the Chancellor would result in the Inland Revenue invoking the powers it already possesses.
Secondly, I hope that we are seeing the end of the period when successive Chancellors seem to think that any reliefs they give in the Budget can be recouped by putting an increasing tax on company profits. This tax is about as high as it should be at the moment, and I find it a little ironic that, when companies [column 1228]are being asked to increase exports, they have an increasing Profits Tax, which means that they keep a decreasing amount of the results of the efforts they make in getting more export business.
At a time when they are asked to scrutinise expenses more closely, it is made less profitable for them to do so, because they retain a lesser amount of the result. At a time when they are being asked to carry out more investment in order to re-equip and install modern machinery, the resources out of which they have to do it are being depleted by increasing taxation. Last year, there was a 2½ per cent. increase in the Profits Tax, which has not yet been felt in full. Now, another 2½ per cent. has been added. In two years' time companies will be feeling the increase in taxation imposed in these last two years.
My right hon. and learned Friend and his successors should be warned that in future Budgets it is not right indefinitely to go on transferring the tax burden from individuals to companies. Companies appear to be the “Cinderellas” .
Added to what the Chancellor does in a few years companies will have to bear an increasing rate burden as rates are transferred to some extent from householders to industrial premises. I understand that companies will also have to take a large amount of the increase in tax on heavy oils.
These factors, I am certain, will ultimately increase prices. I think that over the last year, when profit margins have been squeezed, we have had a period in which companies have tried to take all the increases in costs without increasing their prices. They are now getting something which will clearly increase their prices, and they know that there will be an increase in consumer expenditure at the same time.
There is no point in tinkering about with prices. They will say, “If we are to increase them, let us increase them by an amount which will take into account not only the increase in taxes and costs which we have to bear, but those we are likely to have to face during the next twelve to eighteen months” . That is a danger which arises from the Budget.
Thirdly, may I make one or two comments about the Chancellor's remarks [column 1229]about the structure of taxation. I welcome any simplification of the structure of the tax system, but I should like to take up one point which the hon. and learned Member for Kettering (Mr. Mitchison) made about Profits Tax. I do not think many people realise the tremendous simplification in Profits Tax which occurred when we went from the differential rate to the flat rate. Speaking as one who has a professional interest in tax matters, I say this, that the charging sections for the distribution charge which are inevitable if we have a differential rate of taxation are among the most complicated of the whole tax code. They give rise to more technical anomalies than any other section of tax law.
The moment we make tax legislation extremely complicated, highly technical, and highly anomalous, it gives rise to much scope for tax avoidance. If we want to avoid tax avoidance, we have a duty to try to make the charging sections as simple and as straightforward as possible.
The hon. and learned Member for Kettering quoted the Royal Commission's opinion on Surtax. I notice that he did not quote the Royal Commission on either the capital gains tax or Profits Tax, because they were contrary to his interests in that respect. I would be very much against changing back Profits Tax to a differential rate, and I think that it is right to retain the flat rate. It helps considerably in a simplified taxation of companies.
While I am on the question of the structure of taxation, may I gently encourage the Chancellor to battle as hard as he can with the Treasury. The reasons he gave for not amalgamating Income Tax and Surtax are strangely reminiscent of the reasons why P. A. Y. E. could not be introduced before, in fact, it was introduced. I believe that a memorandum exists in the Treasury setting out the reasons why it was impossible to introduce P. A. Y. E., the memorandum having been brought out about a year before the system was introduced.
As regards the modifications to double taxation, the necessity for one of them would not have arisen had it not been for the fact that we have our taxation in Schedule D of Case I and Case II profits on the preceding year basis. If we are [column 1230]going in for simplification in the structure of taxation, it seems to me that this would provide an excellent opportunity for the Chancellor to carry out the recommendations of the Royal Commission and change to the current year basis. It is a change which I would welcome and I hope that it will be undertaken.
I should like to make one or two comments about Government expenditure. Various hon. Members have quoted various figures without giving the sources, and I notice that the proportion of Government expenditure and Government taxation to gross national product appears to have varied during the debate from about 31 per cent. to 25 per cent. I had better give the source for my figures. It is one of the most interesting things in Budget and economic debates to try to deduce from what hon. Members say which periodicals they have been reading. I know that some hon. Members have read Lloyds Bank Review of April, 1961, because references have been made to the beginning and end of that publication, and some hon. Members have read the middle as well.
The figures given there relate to total Government expenditure at the national and at the local level. It compares total Government expenditure as thus defined to total gross national product at factor cost. The figures on page 4 show that Government expenditure has risen from 9 per cent. of the gross national product in 1890 to 42 per cent. in 1952, and was 37 per cent. in 1959. [Interruption.] The hon. Gentleman has obviously not read the periodical. The article, entitled “Past and Future Public Spending” , is most interesting. It is written by Professor Peacock and Mr. Jack Wiseman. It is shortly to be published as a book—I have no interest in its publication.
When the hon. Lady talks about public expenditure, I take it that she means Government and local authority expenditure. It is still public expenditure if people spend it themselves instead of the Government. For instance, if the Health Service charges were transferred back to the people to spend, it would still be public expenditure.
I defined what I meant. I accept that of the 37 per cent. a certain amount is not a charge on the annual output but is what one would [column 1231]call a form of transfer payment. Nevertheless, the Government have control of 37 per cent. of the expenditure of the total gross national product. It is extremely high, and it brings us to the heart of the problem, that we, as new hon. Members, cannot begin to tackle the burden of tax until we have some means better than we have at the moment of controlling the size of Government expenditure.
I believe that it is folly for any hon. Member to lead the public into believing that there will be a fall in the absolute figure of Government expenditure. There will not be. It is almost certainly bound to rise, if only because the welfare services are expanding, and, for another reason, that much of the expenditure has been on current account. There is a good deal of expenditure and replacement of capital account which needs to be carried out if existing services are to be maintained at their present level. We will not see a fall in the ordinary figure of Government expenditure, but we have to control it as a proportion of the gross national product.
I look forward to reading and debating the recommendations of the Plowden Committee when they are published. At present, the system of control of Government expenditure is very dangerous in that it gives all the appearance of control without the reality, and that is about the worst situation which one can possibly have, the theory being that there can be no new expenditure which has not been approved in an Estimate; no expenditure can be approved in a draft Estimate until it has been approved by the Treasury; and no increase in staff can be had in excess of an amount approved by the Treasury.
Those three things may be all very well in theory, but they do not lead to effective control of Government expenditure throughout the year, and until we manage to solve this problem of controlling the amount effectively by Parliament I do not think that we shall be able to devote our attention to considering how the burden is to be distributed as between one kind of taxation and another.
Finally, I want to refer to one or two miscellaneous points. I am grateful to the Chancellor for his reduction in Surtax, because it will help married women [column 1232]teachers who want to return to their profession, but I hope that in his overhaul of the structure of taxation he will assess the incomes of married women quite separately. I do not mean that he should make merely a technical assessment; there should be a separate charge. That would be far better than the method by which he chooses to proceed at the moment.
European countries are absolutely unanimous in feeling that we are the hardest of all in our treatment of the wife who goes out to work, especially the wife in the middle-class income group who does so. When we find it unanimously expressed that we lag behind Europe in a certain respect special attention ought to be given to the matter by the Chancellor.
I thank my right hon. and learned Friend, on behalf of many of my constituents, for granting relief from tax in relation to the compensation given by the Germans to the victims of Nazi persecution. I have had a great deal of correspondence about this, and I know that this concession will help many of those victims who live in my constituency.
I look forward with even more eagerness to my right hon. and learned Friend's next Budget, when we shall get the result of all that he has undertaken to do in the present one, and I wish him well throughout the many battles that he will have in the process with his Treasury advisers.