New Clause.—(Small Maintenance Payments.)
(1) In section 212 of the Income Tax Act 1952 at the end of subsection (1A) there shall be inserted the following:—
“(1B) If a claimant proves that he is in receipt of any small maintenance payments as defined by section 205 of this Act, or of any payments which, but for their amount, would be such small maintenance payments, in respect of any child living with him at any time within the year of assessment he shall be entitled in respect of each child to a deduction from the amount of income tax with which he is chargeable equal to tax at the standard rate on the appropriate amount for each child.”
(2) In subsection (2) of section 525 (meaning of “earned income” ) of the Income Tax Act 1952, at the end of paragraph (c) there shall be inserted the following:—
“(cc) any small maintenance payments, as defined by section 205 of this Act, and any payments which, but for their amount, would be such small payments; and” .
(3) Section 207 of the Income Tax Act 1952 (duty of court to give information as to small maintenance orders) shall have effect in relation to any payments mentioned in subsections (7) and (8) of this section as it has in relation to small maintenance payments and the expression “small maintenance payments” shall, for the purposes of subsections (7) and (8) of this section be construed accordingly.—[Mr. Sharples.]
Brought up, and read the First time.
Mr. Richard Sharples (Sutton and Cheam)
I beg to move, That the Clause be read a Second time. [column 1308]
The purpose of the Clause is to give to any woman living apart from her husband, divorced or undivorced, benefit of earned income relief on the maintenance allowance she receives in respect of herself or her children. I take no credit for the drafting of the Clause, which is extremely complex. I took the best advice I could.
At present, a woman who is receiving maintenance allowance from her husband gets no earned income relief on that allowance, even though it is paid wholly out of her husband's earned income. Even if the husband is able to claim the allowance as earned income and set off the maintenance payment against that earned income, the wife is not able to claim earned income relief on the maintenance payment she receives.
For the majority of women faced with the problem of separation it is a very difficult period indeed. Basically, the reason why the woman is in receipt of the maintenance allowance is that she is trying to keep a home going. She receives the maintenance allowance to enable her to keep the home going. I suspect that usually, when a woman gets a maintenance payment allowed by a court, she is under the impression that it will not be taxed and that her husband, against whom the order is made, will be responsible for paying the tax on the [column 1309]allowance. This is not so. To add insult to injury, the woman finds, not only that she has to pay tax upon the allowance, but that she has to pay it at the full rate of unearned income.
I cannot do better in describing the position in which such a woman finds herself than to quote words used by the Chief Secretary in 1960 when referring to arguments adduced against accepting a new Clause on these lines by the then Solicitor-General:
“Will he” ——
that is, the Solicitor-General—
“consider an aspect which must be resting heavily on his conscience? At the moment, perhaps, unwittingly, he is taking an unfair tax advantage from women in these circumstances. I do not suppose that that is his intention. He is getting that unfair advantage in that this money, which is supposed to be a simple transfer from husband to wife, would have attracted tax at a certain rate if the two had been living together—the standard rate, say, less earned income relief. Yet when the money is transferred as a matter of administrative machinery the wife pays tax at the higher rate, namely, the standard rate, for example, or the highest possible rate under the provisions, without deduction of earned income relief.” —[Official Report, 6th July, 1960; Vol. 626, c. 512–13.]
This is exactly the position which the Clause seeks to remedy. I greatly hope that I shall have the Chief Secretary's support in his new position.
I illustrate my argument by taking the case of one of my constituents, who drew this matter to my attention. This person, living apart from her husband, is trying to support three children. They are all at the very difficult stage for a family of just leaving school and starting to earn money; but, because they are carrying on with training of one form or another, they are unable to support themselves. This is probably the most difficult stage of all for any family; it is a time when a home is of greater importance than at any other time, because it is a firm base to return to.
This lady, under a magistrates court's order, has a maintenance allowance of £360 a year. This is wholly set off against her husband's earned income of about £2,000 a year. He is able to claim the £360 as a deduction when he pays his tax. She, on the other hand, has to pay the full rate of tax at the unearned rate on the amount she receives. I see the Chief Secretary shaking his head. I am [column 1310]prepared to let him have details of this case. The Inland Revenue's assessment is that this lady pays £74 in tax out of the maintenance payment of £360.
It goes without saying that this is a case which genuinely requires remedy. Since the publication of Margaret Wynn 's book “Fatherless Families” we know much more about the extent of the problem than we did. We are able to estimate that there are probably 300,000 families in this position. Four hundred and fifty thousand children, are affected in this way.
This is not the first time the subject has been raised. It was raised in 1960 by the present Minister of Transport, who moved a new Clause to the Finance Bill of that year in very similar terms to this Clause. She said:
“Surely, this situation is quite wrong. Why should a slice of the man's income not be entitled to the normal tax relief that everyone else would get? Why should the benefit of it go to the Chancellor instead of to a woman who has to face life's struggle under additional difficulties? Clearly, the point of principle is that somebody should get legitimate earned income relief on this slice of the man's earned income.” —[Official Report, 6th July, 1960; Vol. 626, c. 501.]
The subject was raised again last year by Mr. Geoffrey Howe, at that time Member for Bebington. He received no reply whatever from the Financial Secretary, who said that it was too late. It was 9.30 in the evening. One can anticipate the kind of argument which the Chief Secretary will put forward tonight if he intends not to accept the Clause.
The right hon. Gentleman will probably say that the court takes into account the amount in making assessment of maintenance. In his own words, however, this is a bad point—he told us so in 1960. I can let him have the reference if he wishes. He may say that this is not earned income, but I refer him to the point put in 1960 by the present Minister without Portfolio, whom we are delighted to have with us in order to lend support to our case, just as he supported the present Minister of Transport in 1960.
The Minister without Portfolio said then:
“In asking what is earned income, the reply is: what this House says is earned income is earned income. Already, in the past, the [column 1311]House has departed from the strict interpretation of earned income is being by the exertions of the individual by conceding earned income relief to such income as pensions.” —[Official Report, 6th July, 1960; Vol. 626, c. 508.&csb
The Minister without Portfolio (Mr. Douglas Houghton)
Why was not such a convincing argument successful on that occasion? What happened?
We have all learned a great deal since that time. Both the right hon. Gentleman the present Minister without Portfolio and the right hon. Gentleman the present Chief Secretary, supported by virtually the whole of the present Cabinet, including the Prime Minister, went into the Lobby in 1960 in support of a Clause which was in similar terms to this Clause.
The hon. Gentleman has Hansard with him and I have not. Can he refresh my memory and tell us how the hon. Member for Sutton and Cheam (Mr. Sharples) voted in that Division?
I will be frank. I supported the then Government on that occasion. But I have learned a great deal since those days—unlike the right hon. Gentleman, perhaps.
Finally, an argument upon which the Treasury always falls back is that a Clause or Amendment may have a good objective but would be too expensive this year. Let us hear from the Chief Secretary what would be the cost of this proposal and let the House judge whether or not that is a valid reason for rejecting a proposal which we all know should, in equity, be accepted.
The arguments in favour of this Clause are unanswerable, and I hope that the right hon. Gentleman will tell us that he accepts it.
I must say that, as a rather desultory attender of these debates, I was surprised by the speech of the hon. Member for Sutton and Cheam (Mr. Sharples). I have always held the theory that, if I were to divorce my wife and live with her in sin, it would be much cheaper because then we would get two personal allowances, and that, if we could get the children declared to be illegitimate, there would be a whole set of [column 1312]further allowances. I held the view that this made the Income Tax law somewhat immoral.
My wife, however, assured me that there was no real risk, as wives do not trust their husbands that much. Now I am told that this is a frightful grievance because, if the sum at issue here were paid while the husband and wife were together, and was a housekeeping allowance, then the husband would get earned income allowance, which is something the wife does not get. But surely the personal allowances which she does get greatly exceed any earned income allowance which she does not get on an income that is not earned.
Mr. Daniel Awdry (Chippenham)
I support the Clause. From my experience in domestic courts I know of the very great hardship that wives who bring up children on their own suffer. I am sure that all hon. Members, from their experiences in their “surgeries” , know this to be true. This is a branch of the law crying out for reform. The Clause would be a useful step in the right direction, if only a small one. It may not go very far, but it would be deeply appreciated by thousands of deserted wives.
My hon. Friend the Member for Sutton and Cheam (Mr. Sharples) quoted a case and I will briefly quote another. Assume a case where the wife has the care and control of two little children aged 3 years and 1 year and receives £400 maintenance. Let us assume that she also has £10 a week in investment income of her own. Her total income for tax purposes immediately becomes £900, but she is entitled to no reliefs, child allowances or income relief. It is illogical and inhuman that the £400 allowance in respect of the babies should be treated as unearned income. Goodness knows, the wife really does earn it.
The present Minister without Portfolio put this so much better than I when he went into the argument in great depth in 1960, pointing out that the wife would have to bring up two children without help from her husband and that it is a terrible struggle in many cases. Earned income relief in cases of this kind would be of very great help to the wife and it would be a heartless Government who voted this proposal down. It would also be a somewhat hypocritical Government [column 1313]since, as has been pointed out, no fewer than four members of the Government took part in that debate in 1960 in favour of the Clause moved by the present Minister of Transport. I did not vote on that occasion, because I was not a Member of the House. They made powerful speeches and put forward convincing arguments, and divided the House. It makes a mockery of our proceedings if hon. Members change their views simply because they change their seats. I hope that the Minister without Portfolio and the Chief Secretary to the Treasury will re-read the speeches they made on that occasion and meet us tonight by accepting this Clause.
I think that the simplest way in which I can deal with the speeches which have been made is to say that it has been clearly and well established that when we were on the other side of the House my right hon. Friend and I produced arguments in favour of this new Clause in the most clear and powerful manner, as would be expected. But they were not sufficient to persuade hon. and right hon. Gentlemen who were then in the Government, and who proceeded to vote them down, as the hon. Member for Sutton and Cheam (Mr. Sharples) has just confirmed that he did.
The use of the term “hyprocrite” is perhaps a little out of place. It was used not by the hon. Member for Sutton and Cheam, but by the hon. Member for Chippenham (Mr. Awdry), who was not then a Member of the House, and who seemed to think that he could call everybody a hyprocrite. Perhaps he will learn a little more.
It is my duty to explain to the House why, having taken the view that this was an argument well worth putting forward, my right hon. Friend and I now feel on second thoughts that the view expressed by the then Attorney-General and the whole of the then Government Front Bench was more powerful. Let me explain why it is that I feel reasonably happy about putting forward my present argument.
I shall not deal with the cost issue at all. If it were a good case and it simply could not be afforded this year, this would be an occasion for saying that this [column 1314]was not the year for making such a concession. I am sorry, but I do not put it on the basis of being temporarily unsatisfactory. But I put it on the basis of being permanently unsatisfactory, because it is a bad principle.
The whole of the case depends upon an assumption which is quite invalid, namely, that the income of the spouses when partners is the same now that they are separated and that, therefore, the tax payable should be the same and that, because income is transferred from the divorced husband to the wife, the income should bear the same burden of taxability which it bore in the hands of the husband. That assumption is invalid because, in tax terms, we deal not with a situation which might have been, but with a situation which is.
It is because we deal with the situation which is and not with the situation which might have been if the divorce had not taken place that these individuals are given the allowances and treatment appropriate to them. One does not deny, as would be only consistent with the logic of the argument for the new Clause, the divorced wife the full allowance, the greater allowance, attributable to a single person.
The Clause would apply not only to a divorced person, but to a separated family.
That is the same point in law, if I may put it that way, that is to say, it is only when a separated wife is being maintained by the husband that the husband can claim the married man's allowance, and if they are separated they can be treated—I think that the term is femme-sole—as two separate individuals, the husband and the separated wife, which is the same situation as that of the divorced wife.
The first point which I am making, which must go to the root of the argument and which discloses the illogicality in the case put forward by my right hon. Friend and myself and which nobody on the then Opposition Front Bench had the power to perceive, is that the basis of the claim, namely, that the whole of the personal tax assessment of the two individuals should be treated as if they had continued to be a married couple living together, does not rest on any secure [column 1315]foundation. Therefore, each individual is treated as a separate individual.
It is true that the husband does not get earned income relief on that amount of income on which he pays no tax. It is treated as a charge on his income and it is only on the balance of his income that he pays tax. There is no dispute about that and nor is there any dispute that one would want to help, or that in appropriate cases there is possibly need for the social services to step in.
But the wife living apart from her husband is not earning income and it cannot be pretended that earned income should bear the same burden of tax as unearned income. It has always been accepted that there is no case in equity for saying that earned income and unearned income should bear the same level of taxation, quite apart from the good social and economic reasons for encouraging the earning of income. One must accept that these are two separate individuals and should be treated as individuals.
One then gets the position which automatically flows from that. I am sure that nobody will suggest that we have merely to pick out one kind of income which a divorced wife happens to have, alimony, and say that that should be treated as earned income and all other sources of income should not be treated as earned income.
Mr. A. P. Costain (Folkestone and Hythe)
Would not the right hon. Gentleman agree that if this woman were single and acting as a nursemaid to the children, that would be earned income? What is the difference?
Because she would not be supporting the children. If the hon. Gentleman is saying that a single person looking after someone else's children is in the same position as the wife looking after her own children, I do not follow his argument.
That enables me to deal with what was said by the hon. Member for Chippenham, who said that he was aware of a case in which an allowance had been granted to the wife in respect of the children and that she could not claim child allowance. That does not neces[column 1316]sarily follow. If the wife is maintaining the two children, notwithstanding that payment may have been calculated by reference to the needs of the wife plus children, and if the two children are living with her and nobody else is claiming the children's allowance, as the husband in this case could not, she would be entitled to claim children's allowance, other things being equal.
The case which I was quoting was where the husband was granted custody but care and control were given to the wife and the husband was paying money to the wife in respect of the two children.
That is a different situation and that explains the hon. Gentleman's case.
The whole of the Clause deals with small maintenance payments. The hon. Member for Sutton and Cheam has referred to this lady who was in receipt of £360 a year and who was paying the full rate of tax. When he said that I shook my head in disagreement. If she was in receipt of £360 a year, that would be within the level of income at which she would get the additional two ninths earned income relief, or, rather the equivalent of earned income relief on her income, notwithstanding that it came from an unearned source. I can only assume from what the hon. Gentleman subsequently said that this was not her only income and that she was in receipt of other income which brought well above the £450 limit.
I did not say that this was her sole income. Of course, she could not keep home with three children on £360 a year. I do not see how the Chief Secretary pretends that she could. She has to earn money to do so.
I am only making the simple point that the Clause deals with small maintenance payments and that when people have very small incomes below £9 a week, below £450 a year although the whole of that income is derived from unearned sources, it is treated as earned income and the two-ninths allowance is given, which meets the point, quite apart from the case of a person who may be getting on in life and may be in receipt of the age allowance. [column 1317]
I can only repeat what the Attorney-General of the day said that in making payments of this kind the courts take into account the taxability of the various parties, so that this situation is already taken into account in arriving at the sum in question.
I come back to the first point I made, which is my main point, that two people living together as man and wife with a certain income are assessed as man and wife. Once they are separated they become two individuals and a whole lot of consequences flow. Some of them may result in the burden of tax being much reduced, and it is for that reason that the arguments put forward by the Government of the day are still the most powerful ones.
It is always difficult when a back bencher presses an Amendment upon a Government and then finds himself in the position of having to reject a similar Amendment when he becomes a member of the Government. Equally, the reverse is true and it is obviously difficult for a person who supported a former Government to press an Amendment against a sitting Government. The only thing to do under those circumstances is to attempt to look at the new Clause afresh on merit to see if there are any other arguments not previously adduced which could now be adduced.
The arguments about this Clause fall quite naturally under two heads. One has already been used by J. Diamondthe Chief Secretary, in that he said that it is not the earned income, but the unearned income. Perhaps we can examine that in a moment. As the right hon. Gentleman said in a previous debate, we can do what we like with earned income. We can define earned income in any particular way. Let us see what has been deemed to be earned income which would not have been earned income other than for the deeming provisions. A large number of things have been so deemed.
For example, a pension paid to a widow or daughter in respect of the services of the deceased husband or father was deemed to be earned income. There one has the widow or daughter, a teme-sole, living on her own and yet the income still retains its characteristic as earned income because the father or husband would have received this as [column 1318]earned income. That seems to be a case very similar to the one which we are now discussing. There is an even stronger case which the Chief Secretary has put and this is where his logic will depart from mine, a not unknown occurrence in this House.
This is the case concerning family allowance. I do not know how any man can stand at that Dispatch Box and recognise that family allowances on a man attract earned income relief yet say in the same breath that a woman who looks after her children does not deserve earned income relief on maintenance payments. He must be a very curious creature indeed. The Chief Secretary, assuming that he still has has family allowances, or had them one time or another, would have received earned income relief on them. They are not necessarily earned income but they come from a Government and they have the quality of earned income and we have made them eligible for earned income relief.
Similarly and by analogy we should make these maintenance payments earn income relief. I do not see the enormous stumbling blocks which the Chief Secretary sees. We have made many stranger things than this attract the quality of earned income. For example, compensation for loss of office in excess of the permitted amount is taxed as unearned income but gets earned income relief. I do not think that the Chief Secretary is quite right on this particular limb of his argument.
There is another way of regarding this Clause on merit, and it is in this second way that there is a very strong case. As the House knows, from time to time we decide that we wish to give help to certain groups of people by giving them tax relief. We think that, because there are certain circumstances attached either to their age or way of life, they ought to pay less tax than other people. It is for this reason that we give special tax relief to the aged. We should consider this Clause not only as attributing earned income to what the Chief Secretary thinks is unearned income but we should also consider the Clause as a way of giving help to deserted wives and enabling them to pay less tax than they would otherwise have to pay.
Once one puts the argument on to that basis there is an excellent case for giving [column 1319]earned income relief upon these maintenance payments which go only to divorced or deserted wives who are specially deserving of help. One of the characteristic methods of giving help is to give it by attributing to certain income the quality of being earned income. We do this in Section 211 of the Income Tax Act in respect of old people who receive earned income relief on what is patently investment income up to the limit of £900.
Obviously, when looking at the Clause, one tries to find arguments which have not previously been answered. I do not believe that either of these arguments has been answered before. If one is looking at the Clause one can say, first, that there is an argument that these payments should be earned income by analogy with family allowances, and secondly, even if that fails, there is the argument that we should help deserted, separated or divorced wives who are maintaining their own families. If the first ground fails, I believe that we should further and support this new Clause on the second. If we do go into the Division Lobby tonight and make it clear to the Chief Secretary that this is what we want, I hope that he will look at it afresh next year, when he would have to find some very different arguments from those that he has adduced today if he were to refuse it again.
I hope that the House will support my hon. Friend the Member for Sutton and Cheam (Mr. Sharples), who proposed the Clause, in the Division Lobby.
Mr. Frederic Harris (Croydon, North-West)
I shall detain the House for only [column 1320]a few moments. I strongly support my hon. Friend the Member for Sutton and Cheam (Mr. Sharples) in the new Clause which he has put forward so well. I realise how embarrasing it must have been for the Chief Secretary to have to work out his argument against it. We all realise the difficulty arising in this case but it struck me that such an able accountant as the Chief Secretary would have seen all of these arguments in 1960, when he was putting the case forward in the other direction.
It is very encouraging to have the Minister without Portfolio present during the whole of our discussions. We much appreciate his presence. I suppose that he has a bit of a conscience about this Clause. The obvious point to anyone who has listened to the debate is that my hon. Friend the Member for Finchley (Mrs. Thatcher) has completely destroyed the arguments put forward. If one was a bit doubtful about what the true answer was, she had all the answers, as she invariably, does.
Does not that mean that the Minister without Portfolio must now be urged to come to the Dispatch Box and give his version of why this should not be accepted? He must be sitting there feeling even more embarrassed that he has not had a chance to put forward any sort of argument. If there is time, should we not encourage the Minister without Portfolio to come forward and give us his version of why the arguments of my hon. Friend the Member for Finchley should not be sustained in the Division Lobby?
Question put, That the Clause be read a Second time:—
The House divided: Ayes 137 Noes 211.