Mrs. Margaret Thatcher (Finchley)
I join with Niall MacDermotthe Financial Secretary and with other hon. Members in congratulating my hon. Friend the Member for Harrow, Central (Mr. Grant) on having selected this subject for a Friday debate. I only wish that we could now have a further whole day to quarrel with the speech which the Financial Secretary has just made, so strongly do I feel about it.
He made certain assertions about the Selective Employment Tax and said that he could not possibly have had a payroll tax this year and therefore had to have the Selective Employment Tax.
I thought that he did.
They were words to that effect.
I do not see why it would have been any more difficult to add 4s. to the stamp per head than 25s. to the stamp per head. The result would have been that James Callaghanthe Chancellor would have got in the same amount of money, but would not now have to pay any out, and so the administration would have been simpler. The Financial Secretary can afford to look smug and complacent, because he has got all the money in and not yet [column 2019]paid any back. I gently reminded him at Question Time recently about this and he said that the premiums would be started to be paid back in January. I remind him that time is now rapidly running out and expires next Wednesday. Perhaps the premiums will shortly be paid.
I agree with him that in the kind of sophisticated life which we have here we cannot have an ultra-simple tax system, but I do not accept that there are no simplicites to be made in the present tax system. We do not have to accept all its complexities. The hon. and learned Gentleman was a little too complacent about it and said that because we had a sophisticated life, the present tax system was perfectly all right and there were no simplifications to be made. I do not accept that argument for a moment.
He gave some figures of the comparative burdens of tax in this and in European countries. I notice that he did not—probably because he could not—select comparable figures which would give a correct indication after two years of Socialist taxation in this country.
I gave the dates.
He gave the dates of the figures, but they were dates from a period when we still had comparatively low rates of taxation under Conservative Governments. Since then, taxation has gone up enormously in this country and the balance of the comparison may well have turned against us.
He made one or two comments about Capital Gains Tax and disagreed about exempting small capital gains, saying that the same amount of work would still be entailed. I disagree with him about that and I can tell him of one present case which concerns a very small shareholding in unquoted shares of a private company which have had to be realised. The person concerned owns no other assets and yet at this moment the Inland Revenue is straining every mental sinew to its limit to try to prove that he realised a capital gain within a few months. The case has taken a good deal of time, both on the part of the Inland Revenue and on the part of the man concerned, who has had to take professional advice, and [column 2020]yet the capital gain can be only very small. There must be many cases like that when it would be quite clear that there would be no work if small capital gains were exempt, and yet during our debates on the Finance Bill the Government rejected some of our Amendments exempting small capital gains altogether.
I notice that when the hon. and learned Gentleman spoke about fiscal reforms, in the same breath he instantly talked of a new tax. That is probably indicative of his psychological thinking. To him the two are synonymous—fiscal reforms and new taxes—and that is exactly what has been happening in the past two years. Certainly we have had new taxes, but they have been new taxes in addition to and not in substitution for old taxes. I hope that the present record of two new taxes a year under Socialism will not continue very much longer. It will be a very sad thing for the British people if it does.
I have one further comment to make about simplification. The hon. and learned Gentleman's approach to it and mine can be illustrated quite simply. It took him a three-Clause Bill to suggest the simplification of the tax system, in a rather humorous way. If we are to do it in a humorous way. I would do it in a one-Clause Bill to abolish the Inland Revenue. It takes the hon. and learned Gentleman three Clauses to do something which I could do in one. Suffice it for me now to say about simplification that I would prefer the Merrett solution to the MacDermot solution, and I think that the whole of the country would.
In general, throughout the debate there have been two broad approaches to the subject. Some hon. Members have concentrated on their pet subject within the tax system and, therefore, on detailed matters, and others have concentrated on the broad structural changes.
I should like to say a few words about each. There are a number of minor changes which still need to be made, for example, the difference between Schedule E and Schedule D tax. There are a very considerable number of changes which need to be made in the taxation of married women to relieve them from tax. I partly agree with what hon. Gentlemen opposite have said, in that the burden upon married women, if she is married [column 2021]to an able man, is very considerable indeed. I must not say too much about that, because I must plead an interest.
A number of people have mentioned a child allowance scheme and I agree with what was said by my hon. Friend the Member for Belfast, North (Mr. Stratton Mills) and my hon. Friend the Member for Farnham (Mr. Maurice Macmillan). It is a great mistake to confuse two things—firstly, the way in which one raises a tax and secondly the destination of that tax. If one is talking about child poverty and wishing to help there, then that is a matter for the destination of taxation revenues once they have been collected.
The collection of those revenues takes account of family liabilities and other commitments, and it is a mistake to link the two in any way. Since it seems that the Government are thinking of some kind of option scheme it would be a mistake if they thought that they could give an option child allowance scheme on similar lines to the option mortgage scheme, which we have not yet got, but for which a gambling tax was imposed. So far as an option child allowance is concerned, apart from all the administrative complexities, which would be enormous, it would raise between the husband who gets the child allowance, and the wife who gets the family allowance, a certain amount of difficulty. If people have to exercise their option there could be differences of opinion between husband and wife, and that would lead to a number of difficulties. If the burden would fall on to the married woman then the hon. Gentleman would have me to contend with as well.
This scheme is not a wise one to deal with child poverty. The hon. Gentleman's Government should make a systematic study of tax anomalies. Maurice MacmillanMy hon. Friend the Member for Farnham has described the fiscal shopping list that comes up from the Inland Revenue every year, and it must be about time that it is delivered for the Chancellor to consider in his Finance Bill. What I suspect happens is that there is no one at the Treasury who is in charge of Inland Revenue and Customs and Excise, as distinct from answering Questions about them.
Those Departments are directly responsible to the Chancellor, not to the [column 2022]Treasury. At present, there are seven Ministers looking after the finances of the country. Four were enough for us. I should have thought that the Government could have allocated one of these to look at the Inland Revenue and Customs and Excise systems to see if we can get any simplification and to see if a systematic study of the tax anomalies can be made. I would have my favourite for this post, I would recommend the hon. Member for Manchester, Cheetham (Mr. Harold Lever), whom I was delighted to see had joined the Government. In this job he would stand no humbug, and he is practically unique in this Government in having had practical experience of this subject. It has led him frequently to be on our side in finance debates, and I feel that he will be ideally suited to this task.
When it comes to structural changes in taxation one has to make a number of decisions. One very fundamental decision appears already to have been taken, according to Richard Crossmanthe Leader of the House in one of his most helpful speeches—helpful at any rate to the Opposition. At a Fabian Society meeting on 23rd November, 1966, he indicated what decision the Government had taken about public expenditure. This is a year, may I remind the hon. Gentleman, in which the Revenue could not possibly be affected, because it is a year in which he is damping everything down and in which his policy has been not to increase national incomes except with Government permission. During that year, the Leader of the House said this:
“Despite the critical nature of the economic situation we inherited, we accordingly decided that in the future the public sector must take an increasing share of the national income … over the period of 1964–70—a rate of growth a good bit higher than the expected rise in the gross domestic product.”
Clearly, a decision has been taken that the Government shall take a larger share of our money at a time when the growth of that money is static. Therefore, the Government plainly are planning an increase in taxation over that period. The one thing must virtually follow from the other.
We would quarrel fundamentally with that decision. We believe it a wrong decision to take to try to increase the burden of taxation on this country. Once the decision is taken, naturally [column 2023]the growth of public expenditure will rise because the whole approach has been wrong. But it is interesting to know that the Government are planning increased taxation and that it will not just happen because they have to increase expenditure on worthy objects to which they need to give attention.
I should like to say a few words about incentives. A number of hon. Members have mentioned this subject, and their ranks have been joined by bank chairmen. I notice that the Chairman of the National Provincial Bank had something to say about this the other day. In speaking about taxation L. O'Brienthe Governor of the Bank of England said:
“I venture to think that its level in this country is already dangerously high. I have much sympathy with the points made by the Chairman of the Stock Exchange. I wonder how much thought is given in the appropriate quarters not merely to raising taxes but to shaping the tax structure so as to increase the incentives to us all to work and produce efficiently” .
We need incentives all the way up the scale. I am told that the marginal rate of taxation, £1,700 a year, is greater in this country than it is overseas. People need extra incentives at a much higher level, because already people prefer more leisure to the extra amount of take-home pay which they would get from working extra overtime.
The structure for Corporation Tax chosen by the Government was both far-reaching and wrong. It was deliberately chosen. It has already given rise to a number of complications with regard to overseas companies, double taxation agreements, and so on. It would have been far better if they had chosen a slightly higher rate of Corporation Tax and a much much lower rate of withholding tax. I agree that savings, too, need boosting. All these are structural changes which go fundamentally to one's approach to the system of taxation. I should be very critical of the system of investment allowances and the Selective Employment Tax.
With all these new taxes, I am amazed that industry has managed to perform so well and to adapt itself so well. The excellent results achieved by industry—exports are still going up—have been achieved in spite of the Government's efforts and with no help from the Govern[column 2024]ment at all. Let me illustrate that with one or two points.
Ideally, a person with a great talent and ability should be able to arrange his business affairs as befits the requirements of his industry. It would clearly help some people if they could set up overseas because in some countries the markets are closing down as they want their own secondary industries. The Government have made it more difficult for them to do that by their attitude to overseas tax, so they have to consider a structural alteration there.
Hitherto, if people got a certain piece of capital equipment they knew what the effects would be on their taxation liability. They could bring it into their costs and calculate the profit which they were likely to make on products manufactured by the machine. Now they go to the Inland Revenue and the Board of Trade and say, “If I buy this machine, shall I get a tax allowance?” The Board of Trade cannot tell them because it is a future transaction. How can anyone calculate his profits or costs on that basis? One can calculate precious little at all. The person who has the “Yea” or “Nay” in whether an investment grant should be made is not Douglas Jaythe President of the Board of Trade but someone who has been recruited for the job who probably knows precious little about it. So the industrialist has all that to cope with as well.
For the purpose of Selective Employment Tax, one has to consider the basis of establishments, which is a “phoney” one. Hitherto, an industry based itself on the best principles of organisation and methods for producing a particular product. All that must now go overboard. Someone who concentrates on that might make himself liable to heavy Selective Employment Tax, because the tax depends on the organisation of establishments and how many productive people compared with service people there are in one establishment. Therefore, an industrialist can alter his entire incidence of Selective Employment Tax by reorganising his establishments to fit the tax. But industry ought never to have to do this. It ought to be able to go ahead with the best structural and organisational arrangements for its business.
When they have done all that, if they have the time, industrialists can then [column 2025]turn to production and selling goods overseas, but they have to cope with it somehow because of the totally misconceived fiscal changes which this Government have made. I join with the hon. and learned Gentleman on one point. His Government have not been timid in their attitude to taxation and fiscal reform. Certainly not. The trouble is that they have gone about it like a bull in a china shop, with very much the same results. I hope that Niall MacDermotthe Financial Secretary will listen to some of the advice which has been tendered today, but I fear that I am a woman of little faith in that connection.
Question put and negatived.