[column 475]

Clause 5

Income Tax: Alteration of additional rates for 1974–75

Mr. David Howell (Guildford)

I beg to move, in page 3, line 33, to leave out from ‘the’ to the end of line 39 and insert

‘addition after paragraph (b) of the following provision, that is to say—’.

With it may I discuss the linking amendment, No. 8, in page 4, line 2, leave out ‘10’ and insert ‘15’.

The Chairman

If that is for the convenience of the Committee.

Mr. Howell

The story behind these amendments will be very familiar to some Members of the Committee, but for those who may not have followed all its aspects, it is worth while going over some of the story again—and a very shoddy story it is. I should like to take the Committee back to the night of the 16th July when an amendment moved by, I believe, the hon. Member for Cornwall, North (Mr. Pardoe) was carried after a rather desultory debate by 16 votes. That amendment rejected proposals by the then minority Government to change the threshold for the investment income surcharge from £2,000 to £1,000, or down to £1,500 for those over 65.

Although it was desultory debate, it was rather significant because it contained a chilling phrase of the Chief Secretary that he regarded the people concerned and affected by the amendment—and we are talking here for the most part of elderly people, not necessarily retired but getting on, who have saved up and are living on a savings and investment income considerably lower than the average wage in Britain today—as the “lowest priority” . That brought home to some of my hon. Friends on this side [column 476]of the Committee just exactly what were the views of the Chief Secretary and his colleagues on priorities and their view of the kind of people we believe needed to be helped.

The House and Parliament at that time rejected the proposals of the Government but on 12th November, after a General Election, the Chancellor of the Exchequer came forward again and announced that he wished to reverse the matter and to go back to his original proposals of 26th March last year and that he intended to do so retrospectively. He did not, of course, say it in that way. He offered no arguments whatever.

If hon. Members will turn to the Chancellor's Budget Statement of 12th November 1974 they will see that he said

“I intend to restore the proposal I made in my first Budget to bring down the starting point of the investment income surcharge from £2,000 to £1,000, or £1,500 for the over 65s. The House rejected that proposal in the summer”

—the Chancellor admitted it quite frankly—

“but I believe that it will now recognise that the burden of personal tax should fall that much more heavily on investment income than on income which is earned by current effort.” —[Official Report, 12th November 1974; Vol. 881, c. 274.]

Whether or not one agrees with that sentiment, and I do not, that has nothing to do with what the Chancellor is proposing. It is just possible to argue that if the Government elected on 10th October 1974 wish in 1975 to attack elderly couples living on sums which are below the average weekly wage in this country they have some right to do so. I do not believe in the doctrine of the mandate but I suppose than an argument of that kind could be produced. What the Government have no right to do is to legislate into the past and overturn the clear decision of a previous Parliament on this matter. We regard this as an unpleasant piece of political horse trading which we shall oppose.

The amendments do two things. First, they restore what would have been the position on 26th March last year, and, secondly, they go a little further and propose an additional concession for retired people—the extra £500 for the £2,000 not attracting the 15 per cent. I emphasise the date of 26th March 1974 and that we are talking about income [column 477]generated from investment and savings during 1974 up to the end of the financial year 1974–75. That is money that has already been largely spent, if the spending is in an even flow. If we were dealing not with March of last year but with the position now, all of these figures would need radical adjustments.

Mrs. Elaine Kellett-Bowman (Lancaster)

Does this not also apply to those who have been severely injured through accidents and are living on the income from their damages?

Mr. Howell

My hon. Friend is quite right. I will come to a number of such categories. Should the Government be unwise enough to continue with this shady practice and insist on their new proposal in this Bill we shall come to other amendments which will deal with specific categories covering that sort of situation.

If we were to deal with the situation now as opposed to last March we would need to make a substantial adjustment to these figures to leave people in the same position as they would have been in before 26th March because there has been a fall of at least 12 per cent. in the purchasing power of the pound. We shall no doubt be debating the question of monetary correction and indexing during our debates here and in Standing Committee. On this occasion we are simply trying to prevent a nasty piece of retrospective injustice.

I have no doubt that in the Chief Secretary's brief there will be, first of all, some familiar arguments, and maybe, if we are lucky, one or two new ones dealing with why this is very difficult for him and why he wants to stick to the Chancellor's proposals to carry through this retrospective measure. We shall be told it helps people with an investment income of more than £2,000 a year. That is not so terrible in itself and it is a flimsy excuse for hurting many thousands with less than that. It is also a direct discouragement to saving. Secondly, we may hear, and this would be a change from the repetitious arguments of last July, that it will all be all right and we should not worry because the age allowance mentioned by the Chancellor in his Budget Statement will put everything right for people paying on £3,000 a year. [column 478]

We are not concerned with 1975–76. We are talking about what has happened, about the year which began in April 1974 and is nearly over. I hope that we shall not be fobbed off or diverted by the Treasury Bench argument that it will be all right in future. We are concerned with what has happened and what is happening now rather than any proposals the Government may have up their sleeve for the Spring Finance Bill.

A third objection which may be put is that this proposal of ours will cost money. That is so. The Treasury estimate in the summer was that it would cost about £40 million, and presumably that would need to be revised now. We have no hesitation is saying that if money has to be found for this change it should come from cuts in Government spending, cuts which the Government are presumably preparing and about which we shall hear in due course when their next emergency package comes forward.

Throughout the passage of this Bill I and my right hon. Friend will be supporting measures which encourage saving for investment. We shall be opposing measures which are hostile to saving for investment. In doing so we believe that we shall be following the Chancellor's injunction to get the nation to switch out of consumption and provide the savings which are essential to his objectives, which are to finance more investment, to consume less in relation to what we produce, and to put more aside to save and finance tomorrow's investment. The difference is that, unlike the Chancellor and the Chief Secretary, we are not content to make a speech about it and then duck down and wait for the mud to fly from the Left wing. We want to do something about it.

We deplore this measure not only for its retrospection but because it is part—and we shall see many other parts before this Bill is enacted—of the Government's war on savings. In their hearts they do not believe in the idea of private savings. They do not wish to encourage them, and whatever speeches may be made by the Chancellor or anyone else about the need to save and switch resources out of consumption it is a certain bet that every measure contained in this Bill or other Bills which the Government will present [column 479]in this sphere will continue that war on private savings.

My hon. Friend the Member for Lancaster (Mrs. Kellett-Bowman) mentioned one of the categories of people who will be hit. We shall be referring to all these categories in due course. There are the disabled, possibly well over 1 million of whom cannot work full time. There are widows with children, and pensioners who purchased annuities with a lump sum and now find that while part of the annuity comes tax-free the other part suffers this impost. There are many other categories. One category which the Chancellor thought he was helping in some concessions he hinted at—had he been able to get his measure through last May and June—was that of divorced people with children. He said that the first £1,000 of investment income would be free of surcharge and the first £1,000 of maintenance income.

In real life, the maintenance often does not come through. Does it follow that there is to be a penalty? The answer is that under the present proposals the Government believe that there would be a penalty upon the divorced person trying to live on an investment income which may be in the region of £1,500 to £1,800. The maintenance does not come through and, therefore, they do not qualify for relief. My hon. Friends will no doubt raise many other categories and have many stories to tell of the kind of people who will be hit by this nasty little measure. It is part of the business of concessions between the Chancellor and the Left wing of the Labour Party. Obviously, the right hon. Gentleman has his problems trying to settle that account. Every one else sees this for what it is. It is a piece of political horse-trading, the victims of which are many thousands of people who do not deserve to be treated in that way.

It has been said that the only people who would escape the previous Chancellor's measures were the quick and the dead. As we shall learn from future debates and amendments, not even the dead will escape many of the provisions of this Finance Bill. The quick, if they are quick in spending, may get rid of some of their savings and avoid paying the penalties. They will thus escape some of the provision of the Bill by doing [column 480]the exact opposite of what is needed from the national point of view, which is to increase savings rather that to increase spending.

The provision which we seek to amend back to its previous state is an attempt to legislate over a period back to when the Government were not in power. There was then a minority Government, admittedly a Labour Government, in a different situation with a different from of parliamentary support. Because this measure tries to legislate back over that period, and because it is utterly hostile to private savings, we seek to press the amendments to restore the previous position, and I commend them to the Committee.

Mr. David Mitchell (Basingstoke)

The clause applies an extra tax to anyone whose income from investments exceeds approximately £20 per week and to anyone over 65 whose income from investments exceeds approximately £30 per week. The clause is unfair, vindictive and against the national interest, and I hope that the amendment will be supported vigorously by my hon. and right hon. Friends.

The clause is unfair because a business executive with a company pension, a retired civil servant with a Civil Service pension, a retired member of the armed forces, a bank manager and others who have superannuation schemes are able to have an income which is supplementary to the State pension without incurring the investment surcharge. A person who has worked overseas and brought back a lump sum which he has invested is clobbered. Small business men who have had a small factory or workshop, market gardeners and small shopkeepers who have sold their businesses, retired and are living on income from the sale of those businesses are clobbered.

I am glad to see that the Under-Secretary of State for Industry, who is responsible for small businesses, is sitting on the Government Front Bench. I hope that he will seek to justify the clause, which is a powerful and unfair attack on the small shopkeeper and the like.

The clause applies to people who during their working lives have ploughed their savings into a business. With the [column 481]present rate of inflation, every small business has become a rapacious consumer of funds. A business which has £1,000 worth of stock on its shelves this year, with a 20 per cent. rate of inflation, will need £1,200 worth of stock on its shelves next year so as to have the same number of tins, bottles and so on. Countless small businesses have been drawing on the proprietor's savings in the form of extra working capital just to keep going. The proprietors have had no money to put aside for a pension or superannuation benefit. Many have sold their businesses. They were clobbered by capital gains tax but hoped to be able to live off what was left.

As I came into the Chamber I cast my mind back to a couple of examples. Hon. Members may remember Jimmy Jones, the milkman in Crooked Lane in the City. His place has gone now and has been replaced by a pub and a bank. Jimmy Jones and his wife both worked in the business. They had a milk round in the City in the morning and at lunch-time they had a clientele which consisted of bank clerks, shop managers, city cleaners and myself. They did the best baked jam roll that was obtainable in the City in those days. Mrs. Jones did her cooking in the kitchen at the back with sweat pouring off her from early in the morning until late at night. Jimmy Jones is retired and living on his savings now. Those two worked hard to have the capital to invest to enable them to live in reasonable comfort in old age, and are a typical example of the people who have been picked on by the Chancellor for such unfair treatment.

I think also of a shopkeeper in Basingstoke, which is an expanded town. The council compulsorily purchased the business when the shopkeeper was 62, too old to be able to start afresh, so he had to take the compensation money, which represents his savings. He, too, is clobbered.

It is unfair that the well-paid bank manager should not be clobbered when the retired small business man is clobbered. The Government should think again about this provision on grounds of fairness alone.

The clause is also vindictive. It is an unwarranted attack on those who have saved throughout their working lives. [column 482]Those people are not wealthy. Let us look at the capital sums which will give the sort of income with which we are dealing. For someone who had invested savings in Consols the Government relief would start at £6,123 or on £9,185 if the person was over 65. Under the modest amendment that person would be able to receive £12,246 on the investment before he started to pay the surcharge, and £15,207 if he was over 65.

Let us take an investment in the Commercial and Industrial Preferred Index, which is a usual investment for someone who seeks to safeguard his old age. The Government relief starts at £5,316 or £7,974 if the person is over 65. Those are minuscule amounts. The amendment would apply to investments of £10,632 or for a retired person, £13,290. That is less than the cost of an average four bedroomed house, and that is the point at which people are clobbered by the clause.

If we take the All-Share Index we find that the amounts are £9,000 and £13,500 for a person over 65, on which the Government seek to allow relief. On the All-Share Index the modest amendment means that someone with an investment of more than £18,000 would start to pay the surcharge or more than £22,500 if he is over 65.

To clobber a man who throughout his working life has saved such a modest sum—and his widow—is vindictive in the extreme. I urge the Committee to support the amendment and to reject the clause, which is unfair and vindictive.

Thirdly, I urge the Committee to support the amendment because it is in the national interest, and the Bill is against the national interest for one straightforward reason which everyone can understand. There are countless analyses of Britain's problems. There are as many different solutions as there are economists or working men's clubs. One thing on which they all agree is that we need more investment and more capital. More investment means more capital, and more capital means more savings. It is the only way to obtain such money unless it is borrowed abroad. But apparently the present Government prefer to borrow abroad and to run up debts for future generations rather than encourage the present generation to save, build up capital and invest it. [column 483]

The Government have vindictively clobbered those who have saved in their working lives and will discourage those who want to save now and in the future. It is against the nation's interest that vindictive legislation of this kind should be allowed to go on the statute book.

[Mr. Alan Fitch in the Chair]

Mr. Julian Ridsdale (Harwich)

I am not surprised that the Labour benches are empty for this debate when we are discussing a measure which is both unfair and, to adopt the word used by my hon. Friend the Member for Basingstoke (Mr. Mitchell), “vindictive” . I think the word “dogmatic” should be applied to this proposal.

I represent an area in which there are a great number of elderly people. At a time when we have seen increases in the level of rates and in the price of fuel, food, clothes and shoes, the cost of living has borne heavily upon the people at whom these proposals are aimed. They can hardly afford to eke out a meagre existence. Indeed, many pensioners affected by the proposal are not living but merely existing. Yet the Labour Government, in the name of Socialism and so-called fairness, are hitting at those people and hurting them a great deal. For this reason I am only too pleased to support the amendment.

I wish to underline what was said by my hon. Friend the Member for Guildford (Mr. Howell). We do not believe in taxing the weakest members of the community. Could anything be more unfair? We believe in encouraging saving. The present Finance Bill attacks saving, and this is a weakness which plays a great part in the crisis which faces the Government not only in terms of financial standing but in their dealings with the world at large.

I am sure that the Chief Secretary agrees that something should be done to encourage saving, yet along come the Government with this vindictive measure as an example of their thinking. This attack on saving can only lead the country to disaster. The proposal represents an attack on the weakest members of the community at a time when inflation is [column 484]rampant. I support the amendment and sincerely hope that it will be carried.

Mr. Ian Gow (Eastbourne)

I also wish to support the amendment, and I do so for four principal reasons.

First, I intensely dislike the whole principle of retrospective legislation. The Finance Act which was passed earlier in the year laid down the rates of tax which were to apply for the current financial year. Therefore, it was reasonable for Her Majesty's subjects so to plan their affairs and arrange their finances on the basis that following that legislation they knew what their tax liabilities were to be. That principle has been flagrantly violated by the present Finance Bill, and it is an evil that will be removed if the Committee accepts this amendment.

The tendency to retrospective legislation is apparent not only in this Finance Bill in respect of the rate of investment surcharge but also in the procedure that followed on capital transfer tax. That tax was made retrospective to 26th March and the proposals were not published until the present Session.

My second reason for supporting the amendment is that of all categories of people who have suffered most as a result of inflation it is the person with a small savings income. Since he is a retired person and in a different category from others, it is impossible for him by his own efforts to do anything to increase his income—for, by definition, retired people have already carried out their working life. Furthermore, the category of person which we are now considering has already suffered grievously as the result of the collapse on the Stock Exchange. Therefore the very people who are among the most worthy citizens and who have given a lifetime of work are now penalised since they are hardest hit by inflation, and unless the amendment is passed they will be hit even harder.

The right hon. Gentleman the Chancellor of the Exchequer seems to have a guilt complex on this subject since on 12th November he said that the House would recognise

“… that the burden of personal taxation should fall that much more heavily on investment income than on income which is earned by current effort.” —[Official Report, 12th November 1974; Vol. 881, c. 274.]

[column 485]

The phrase “current effort” implied that he recognised that the income to which we are now applying our minds is, in almost every case, the result of past effort, and it is a grievous mistake of the Government to penalise savings.

The third reason for supporting the amendment is that the present Parliament has a special duty to protect the most vulnerable at time of inflation. We shall fail to discharge that duty unless we agree to the amendment.

Finally, if the figures of £1,000 and £1,500 for those over 65 were right when the Chancellor introduced his Budget on 26th March, surely they now need to be revised upwards significantly by about 12 per cent. to take account of inflation. If the Government thought those figures to be right in March, they are obviously wrong today. For these reasons I hope that we shall press this amendment to a Division.

Mr. Giles Shaw (Pudsey)

I, too, wish to lay special emphasis on the plight of the elderly retired. The assumption behind any attempt to introduce a surcharge, particularly a tax surcharge, is that it should be primarily on large incomes. At the moment we are discussing incomes from investment. In many cases there will be large incomes from investment, and, in addition, incomes from other sources to sustain the standard of living of those who enjoy an investment income. But, by definition, a tax surcharge is an additional impost to cover exceptional earnings.

This fact to some extent is grudgingly acknowledged by the fact that in the clause some extremely modest and inadequate relief is given to those of retirement age. Yet the vast majority of those who are of retirement age and above, or those who will be affected by the clause, will be beneficiaries of pension schemes—some no doubt “top hat” pension schemes—and many may receive income from other sources. The elderly retired who are caught by this surcharge, whose total income is made up of investments which they have gathered during their working lives plus the State pension, are most unfairly hit by this impost. Therefore, I fully subscribe to the view so splendidly expressed by my hon. Friends the Members for Basingstoke (Mr. Mitchell) and Eastbourne (Mr. Gow). [column 486]

There is a particular group of persons in my constituency to whom this measure applies fully. The spokesman for that group is now approaching his eightieth year. He build up his investments through saving for retirement when there was no available pension scheme during his employment. There are many retired shopkeepers, retailers and small business men in my constituency. All of them, as has been demonstrated, relied exclusively upon the sales of their businesses and the savings that they accrued during their working lives to live modestly in retirement. The relief of £500 for this group is nothing short of malicious. One of my pensioner constituents has advised me that the proposals in the Budget would leave him with a take-home pay of only 71p for two persons out of the £2.50 increase in the pension which is to come into effect in April.

I ask the Chief Secretary to consider, if possible, absolving from this surcharge those of retirement age who have no income whatever from any other source. I expect that he will argue that such a proposal will be far too costly. But this modest amendment to raise the surcharge start-line rate would be some small contribution. Surely the Chief Secretary must agree that a surcharge on the elderly retired is unjust and unrealistic, revising, as it does, their tax rate to about 48 per cent.

We on this side of the Committee make a special plea for this group of persons which has been most hard hit by inflation. The very least that we might do for this specific group is to agree some form of indexation to protect them from inflation. But, more important than that, we plead for those who have given a lifetime of service to the community and, as they approach their declining years, seek some respite on the earnings that they have accumulated. It is for savings and to be realistic and human that we wish to press the amendment.

Mr. Douglas Crawford (Perth and East Perthshire)

I do not intend to pull the heartstrings to the Committee as other hon. Members have done. However, I should like to endorse the amendment proposed by the hon. Member for Guildford (Mr. Howell) and to point out something which may not have occurred to him—namely, that the Bill, as it stands, [column 487]is a positive discrimination against Scotland because we save more per head than the rest of the United Kingdom. If and when the amendment is passed, some of the discrimination against Scotland will be removed. I hope that the Treasury will take note of that point.

Dr. Reginald Bennett (Fareham)

I endorse what my hon. Friends and the representative of the independence of the North have said about this matter. It is not necessary for me to add epithets and other expressions. I agree in principle with all that has been said. However, I should like to ask the Chief Secretary how much will be taken from these defenceless people by this measure.

Mr. Tom King (Bridgwater)

I intervene to reinforce the comment made by my hon. Friend the Member for Eastbourne (Mr. Gow) that inflation has already diminished the real value of the levels at which the surcharge will apply. The knowledge of many hon. Members is that when levels are fixed they remain.

No inflation adjustment is built into any of these proposals. Indeed, what was considered to be a fair level a year or two years before, since this policy has become a political football, is palpably becoming extremely unfair. If inflation continues at its present rate, within another year or two years it will be a positive outrage in the knowledge that successive Governments have refused to adjust the allowances to take account of inflation.

I recently visited a factory in my constituency. One of the foremen told me about a man who had been regarded as a bit of a freak in his time because he had never indulged himself very much but had been proud that he had saved and not spent his money on the pleasures of this life. That man had continually said to his colleagues “You are all mugs. You will regret it when you retire.” That chap has now been retired for five years. The foreman to whom I spoke met him quite recently. They had a conversation, during which this retired man said “Do you remember what I used to tell you when I was working? I should like to tell you now that I was a real mug. I should have been far better off had I spent my money as fast as I could.” [column 488]

I agree with my hon. Friend the Member for Guildford (Mr. Howell) that destroying the interest in and the concept of saving is bitterly damaging the whole fabric of our society. The Chief Secretary no doubt has a brief ready to play ping-pong with our arguments in an attempt to keep the Government's end up. No concessions have been made so far. I hope that he will take to heart what I have said. This is a bitterly tragic and distressing situation. I believe that the concessions and the levels that we are fixing, even if they remain at the levels that we are now proposing for more than a year, will, at the present rate of inflation, still be too low. I hope that the Chief Secretary will not play parliamentary football with this matter, but will take to heart the arguments that have been put forward.

Mr. John MacGregor (Norfolk, South)

I do not wish to repeat the arguments which have already been advanced, with which I most strongly agree. However, I want to bring out certain points because this proposal, about which I feel most strongly, has caused immense bitterness amongst many people to whom I have spoken.

The first point that I want to emphasise, which has already been stressed but cannot be repeated enough, is that the people concerned have only modest means. I refer particularly to the over65s, though many of my arguments apply to other groups.

The hon. Member for Perth and East Perthshire (Mr. Crawford) need not be so partisan. Speaking as a Scot but representing an English constituency in which there are many Scots, I assure the hon. Gentleman that the savings habit has spread well south the border for a very long time.

The people about whom I am concerned have savings of between £15,000 and £30,000. We have heard how easy it is for someone to come into that category. It is not difficult for a person to accumulate £15,000 during a lifetime. Often shopkeepers and the self-employed have no means of accumulating savings other than through the sale of their businesses when they retire at 60 or 65 years of age. These people have been unfairly hit in many ways in this last year, and this is the final blow. [column 489]

I repeat, it is easy to get in to this category on retirement. A man may sell his house in a prosperous part of the country to retire to an area like Norfolk where, at least until two years ago, he could buy a new house fairly cheaply. He may have had life policies which matured when he reached 60 or 65 years of age, he may have commited part of his pension, or he may have built up his ordinary savings. The resulting sum comes exactly into the category on which this excessive tax would have to be paid.

If these people have equities, they have seen their capital value collapse. If they have put money into fixed interest stocks, they have seen them drop 20 per cent. in value. With perhaps 20 years of life ahead of them, they wonder how their savings will last. They now face a tax of 43 per cent. on the first slice of their income over £1,500 and 48 per cent. after that. Even without this tax their net income does not keep up with inflation levels, and the tax will make the position worse.

These people are bitter because they feel themselves particularly ignored by the social contract. They face heavier increases in their spending than groups who are not retired. They have retired to rural areas where they face long journeys for shops and other services. The petrol increases have hit them particularly severely. They are bitter towards wage-earners, many of whom have received three increases ranging from 30 per cent. to 50 per cent. over the past year. They feel bitter about the young, particularly the unmarried, many of whom, with few commitments to families and others, have also received substantial increases and have, therefore, achieved an enormous increase in their discretionary spending power in the past year. They feel bitter about the con trick which has been played on their lifetime habit of saving towards their retirement.

We should also consider the effect on their children who, have seen what has happened to their parents, wonder whether it is worth saving. Finally, there is the effect on the economy. When the Government should be encouraging savings and investment, this policy, among others, will achieve exactly the reverse.

But the problem goes much deeper. This is the inconsistency in the Bill. In Clause 6 the Government are trying to [column 490]encourage additional investment in the building societies, but his provision is crippling many of the most likely contributors to the building societies. It also affects people's desire to invest in life and insurance policies. Instead of helping the present problems of the insurance industry, this proposal makes things worse. The effect on savings in industry has already been mentioned. This provision goes directly contrary to what we should be trying to achieve in economic policy. It encourages a philosophy of spend, spend, spend. I cannot believe that that makes sense.

There are two other arguments against this proposal. In the debates on this Finance Bill, as on the last, we shall hear a great deal about indexation, and I should welcome a prolonged discussion. If we were to index the allowances in this area, we should be talking in the main about £2,400 not £2,000, as the limit at which the higher rate applies. The amendment will at least achieve that purpose for the over 65s.

What astonishes me is that the Government have elsewhere accepted the principle of special treatment for these people, as shown in the Chancellor's announcement about the new age allowance to be implemented in the next Finance Bill. So he must have recognised the validity of many of our arguments. The inconsistency of hitting that group much harder this year before giving them extra relief next year is beyond belief. For that reason, among many, I hope that the Government will have second thoughts and will yield to the amendment.

Mr. Percy Grieve (Solihull)

The action of the Government in seeking to set aside the amendments to the 1974 Finance Act and to reduce to a limit of £1,000 the concession for aged people living on investment incomes will demonstrate what the middle classes now believe—that the Government are waging deliberate war upon them. In March last year I put down a series of Questions to the Chancellor of the Exchequer asking what income would be necessary today to produce after tax the equivalent of a series of incomes in 1939 from £1,000 to £10,000 a year. His answer showed that in March last year one would have needed £64,000 to achieve the equivalent of a 1939 income of £2,000. That figure shows, if anything does, that someone in [column 491]retirement with investment income of £2,000 today is far from rich.

I have sent the Treasury a number of letters from constituents about this clause. A large number of people in my constituency have sold their businesses and are living in retirement on the fruits of a lifetime of labour, many of them on incomes of £1,000 to £2,000. Today £2,000 is being earned in many sections of industry; it is not a high income.

The clause will hit people who have saved hard. The Government are deliberately seeking to discourage the virtues of thrift and industry by which alone our country will achieve economic recovery. In speech after speech, Treasury Ministers pay lip-service to the need for thrift, saving and investment in industry, but by their actions in this Bill, including many clauses to be debated later, they are discouraging those very qualities.

I warn the Government that the patience of the middle classes is nearly at an end. An article in The Times the other day headed “The Anger of the Middle Classes” expressed no more than the truth about the actions of this Government toward the middle classes.

These people have also been hit throughout by the fall in the value of stocks and shares. I made a speech in May or June of this year, when the Financial Times Index had fallen to 271, and the Financial Secretary sat on the Front Bench with a grin on his face—[An Hon. Member: “He is not even listening.” ] I dare say he is not, because Treasury Ministers are shutting their ears to the arguments about this vicious attack on saving, investment and those who save and invest. I hope that they may yet have second thoughts and concede the amendment I say “I hope” because

“Hope springs eternal in the human breast.”

But I very much doubt whether they will, because their real motives are to destroy the middle classes and to destroy the economy of this country.

Mr. Patrick Mayhew (Royal Tunbridge Wells)

I want to support the central point made by my hon. and learned Friend the Member for Solihull (Mr. Grieve). I represent a constituency which perhaps has [column 492]an unusually high concentration of people who are now retired. They have been brought up throughout their lives to save, but they now bitterly regret ever having done anything so unworldly.

I do not want to belabour the practical or the constituency point. I want to attach it to a point of principle because, as I understand it, the philosophy behind this part of the Bill is the philosophy of social justice. Not many of us may be able to define social justice, but probably all of us would say that we were in favour of it. But social justice, just as is the case in any other form of justice, requires that there shall be justice as between one subject of the Queen and another. Those members of our community who have done the unselfish, the independent and the patriotic thing, who have done the thrifty thing, all their lives, now see themselves penalised, while at the same time they see other members of the community who have done none of these things now becoming the non-contributing beneficiaries of retirement pensions and other welfare benefits to pay for which the savers are being taxed. These people now see themselves not the beneficiaries of social justice but the victims of social injustice.

It is partly because the Bill makes no distinction between persons living upon incomes derived from inherited investments, on the one hand, and persons living upon incomes derived from saved investments, on the other, that I believe it essential that the amendment should be accepted. The other reason is the reason of principle to which I have already alluded. I believe the Bill to the fundamentally bad in this particular because it is based upon an unjust principle, and it is on the point of principle just as much as upon the particular point that I shall support the amendment.

Mr. William Clark (Croydon, South)

I agree with what my hon. and learned Friend the Member for Royal Tunbridge Wells (Mr. Mayhew) has just said. The Minister really is setting taxpayer against taxpayer in this regard. We can talk about inflation and about people drawing welfare benefits, the old-age pension, and so on, but in this regard what we must examine is the positions of, for instance, two people working for different firms. [column 493]

It may be that one person is fortunate enough to work for a firm which has a superannuation scheme. That employee, during his working life, may or may not contribute to that scheme, but if he does contribute, successive Governments have given him tax relief on his contributions. When he comes to retire at the age of 65 or 60—I think that the age of 65 is a little mythical—having had his superannuation contributions allowed for tax relief during his working life, he then receives a pension and enjoys what is known as the earned income relief. In any case, he is not subjected to the investment surcharge.

In the case of his contemporary who is working for a different firm which, unfortunately does not have a pension scheme, his salary may be adjusted because of the lack of a scheme during his working life. He has not paid superannuation contributions because there was no scheme to join, and he has been paying tax on his slightly higher income during his working life. When he comes to retire, the savings he has made are then clobbered.

We are talking about £1,500 a year, but what is that as a pension? It is about £30 a week. When one considers that average industrial earnings are well over £40 a week, one appreciates that we are not talking about anything to assist the rich. It is the small man.

I regret very much that the Minister who is responsible for small businesses is not present. He was present earlier. I should have liked him to answer the debate, because the people who are being penalised are particularly those who were not sufficiently fortunate to belong to a superannuation scheme and the self-employed. The self-employed, during their working life, have had to make provision for their old age.

The Government are being a little schizophrenic in the Bill. The Chancellor says in Washington, and at any meeting of Finance Ministers anywhere, that in this country we must have investment. But what do the Government do? They clobber investment. They do not encourage it. The Government cannot have it both ways.

The Chief Secretary has great expertise in taxation matters. Fortunately, he is one Minister who understands what tax [column 494]is all about. I am sure that he will agree that taxation, to be acceptable, should be equitable. That has been the premise and philosophy of successive Governments. In the example which I gave, of two persons working for different firms, one in a superannuation scheme and the other not, it is not equity at all. This is grossly inequitable. I do not find it funny—as apparently do Ministers on the Government Front Bench. Not all of my constituents are terribly rich. They are thrifty. They have saved money during their working lives. Not all of them have belonged to firms with superannuation schemes or have additional pensions.

I ask the Minister to look again at this matter, because the clause is a vicious attack on anyone who shows a sense of independence. Whether or not a person is to have a pension from his firm, why should he not save his money during his working life and augment his old-age pension or whatever pension he may receive at the age of 65? Why should the present Government, or any Government, say “You have been thrifty all your life, but now at your retirement age we shall clobber you and tax you harder than your contemporary” ? That is why I hope that my right hon. and hon. Friends will press the amendment to a Division.

Mr. Patrick Cormack (Staffordshire, South-West)

It is extraordinary that the present Government should have become the scourge of the saving classes. That is what they have become. Unless the Chief Secretary concedes the amendment, or something very much like it, he will be guilty of gross paradox. We have a Government the Ministers of which will stand at the Dispatch Box time after time saying “We must make sure that our old people are properly catered for within the State system, and we must make sure that pensions take account of inflation and that supplementary benefits do likewise” . The Government also talk of the need for helping underdeveloped countries. Yet the Government, who will do all of that, are at the same time viciously attacking those of their own citizens who, through thrift, foresight and perseverance, have over decades saved their own money for their retirement. It is a most dreadfully paradoxical situation that this sort of Government may be hitting these people. [column 495]

It is also rather strange that Socialists who say that they wish to help people to advance themselves should be penalising people who have taken the precautions to make sure that they are not dependent totally upon the State when they retire.

I hope that the Chief Secretary, who is a member of the middle classes and has no doubt got savings, who is an accountant and knows how these things work, will bring his personal experience and knowledge to bear. I hope that if he has some form of distorted brief in front of him he will toss it away and talk with a degree of proper knowledge and compassion when he replies to the debate. Hon. Members on the Government side of the House are very fond of the word “compassion” , but it is a sort of selective compassion. It is allowed to apply to only certain sections of society. It is absolutely fatuous that we should allow ourselves to be browbeaten by hon. Members on the Government side of the House into ourselves sometimes adopting an almost guilty stance when we defend capital and inheritance. What is wrong with somebody building up his capital and, through his saving, contributing towards the financial well-being of the country? We need those people at the moment. What is wrong with the ordinary human instinct to try to do a little better for one's children than one has been able to do for oneself and pass on something from the fruits of one's labour, to quote my hon. and learned Friend the Member for Solihull (Mr. Grieve)?

I cannot accept that the type of pernicious and vindictive principle that is enshrined within this Bill is truly British, and I hope that we shall vote against it. Of course, I trust that it will not be necessary to vote against it because I hope that this amendment will be accepted.

Mr. Dafydd Wigley(Caernarvon)

I had no intention of intervening in this debate, but now that I have decided to do so I must say that I do not agree with most of the comments which have emanated from these benches, although there are some with which I do agree. I am not sure whether I follow the hon. Member for Staffordshire, South-West (Mr. Cormack) in that great British tradition to which he referred. [column 496]

I am pleased to see that the number of Members on the Labour benches has now risen to double figures, because for much of this debate there have been only five Members on those benches. It is incredible that not one spokesman on the Government benches has so far risen to defend the Government's propositions.

Having said that, I find myself probably in greater sympathy with the idea that income should be earned rather than come from investment than are most Members of this side of the Committee, but I ask the Government in all seriousness whether this is the right time to take the measures which they contemplate. People who have saved in order to provide for their retirement, because there were no superannuation schemes available, now find that the value of their savings has been decimated, and some of them may be facing a marginal tax rate of as great as 48 per cent. These people are earning less than £2,000 a year—£40 a week—at a time when the average male industrial worker over 21 is earning about £55 a week, and one must ask whether this is equitable. From the point of view of the timing of these proposals and of fair play to people who have been put into this position, the Government should look again at these proposals.

I wish to refer to another aspect—that of capital formation. Everybody seems to be agreed that capital formation is an essential part of the remedy to our economic situation. But there is a real danger, not only in this Bill but because of other things which have happened to the economy in recent months, that those who might be induced to invest money and save may be scared away. If this happens and the fires in this direction are stoked by such moves, I wonder whether the Government have any alternative for increasing the level of capital formation in the economy. I have not heard any positive proposals in that direction. The references to increased levels of savings in building societies do not go far enough to meet this point.

Finally, may I ask the Chief Secretary to say how much money, at the latest estimates, the Government expect to get from the change proposed in this clause? I think the answer would be very revealing.

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Dr. Alan Glyn(Windsor and Maidenhead)

The Chief Secretary will agree with one thing, and that is that this country's economy has been to a large extent build up on the small saver and small entrepreneur. If we are to encourage people of that sort, the type of legislation which it is proposed to put through today will have exactly the reverse effect. What is the good of saying to people “We will encourage you to invest in building societies” when at the same time exactly the reverse is being done by this Bill?

Is there any real difference between the man who all his life contributes towards a pension scheme and the man who has no alternative, because he is self-employed and has his own business, but to save and invest and then at the end of his life to live on that investment? I cannot see the difference.

Coming to my third point, which the hon. Member for Caernarvon (Mr. Wigley) brought out very well, is this the time to penalise savings when we have an extremely high inflation rate and when we ought to be encouraging people to save? This sort of measure is wrong, and in any case it is certainly introduced at the wrong time.

Mr. Nigel Lawson(Blaby)

I, too, had not intended to speak in this debate but I have been very much struck by the eloquence and cogency of the remarks of my hon. Friends who have made various cases for this amendment, and by the equal eloquence of the total silence from the benches opposite. I agree that certain sedentary noises occur on the benches opposite from time to time, but I would not grace them with the description of eloquence.

My first complaint is that this proposal is all of a piece. Everything in this Bill and, indeed, pretty well everything the present Government have been doing, when one thinks of the surcharge—the special tax—on the self-employed, is part and parcel of an attack on independence, self-reliance and individual self-respect. It is an attempt to create a spendthrift society totally dependent on the State and on those who hold temporarily the levers of power in the name of the State. It is also in this context an attack on small savers. [column 498]

Before going on to the smallness of the savings which are involved, I ask the Chief Secretary to answer a question which puzzles many of my constituents. They want to know why they should pay a surcharge on investment income at all, when they have worked very hard for the savings which they have accumulated. We are talking about very small sums of money. My hon. Friend the Member for Basingstoke (Mr. Mitchell) said that at the current rate of inflation, on undated securities—many people have Consols and War Loan—to be the recipient of the savage increase introduced in this Finance Bill, the saver will have to have saved up on more than £6,000. That is not a large sum. It is nothing like the £20,000 aired by the Chief Secretary and I think also by the Financial Secretary when we debated this matter less than 12 months ago, when the Government then tried to introduce this proposal. Even that yield would not compensate for the rate of inflation.

I do not know whether the small savers are meant to be part of the social contract but one assumes that they are because we are told from time to time that everybody is. The trade unions regard as part of the social contract the necessity for their members' incomes to keep level with the rate of inflation. The small saver's income cannot possibly keep pace with the rate of inflation. But at least he may hope that the value of his small capital will keep pace with the rate of inflation. To do that he will need to have a yield of 21 or 22 per cent. which would mean that we are talking about a capital of only £4,000 being affected by this proposal. Indeed, the capital would be much smaller if one took into account the rate of taxation, because the yield needed to cover both the rate of inflation and the rate of taxation is so high that it does not bear thinking about.

There is a more important social contract than the mythical social contract which the Government talk about, and that is the contract to keep faith with the people over the value of money and the value of people's savings. That is a difficult thing to do. Inflation is a problem which is puzzling and baffling many countries. But to make the situation infinitely worse, in particular for those most vulnerable, is unforgivable and the [column 499]grossest breach imaginable of the social contract.

I wish to reiterate one point made by my hon. Friend the Member for Eastbourne (Mr. Gow). This is true retrospective legislation, but we have come to expect that from the Government. It was contained in their last Finance Bill on several occasions, and no doubt on examination the same will be seen to be the case in this Bill. It certainly applies on the point we are discussing. It would have been fair enough constitutionally if the Government had said “We fought the election on the basis of clobbering savings, the small saver, the self-reliant and independent, and on the basis of destroying the middle classes. Having got our mandate to do that, we will introduce new taxes to give effect to our plans.” But what we have here is far worse. This provision is being introduced five-sixths of the way through the fiscal year and will apply retrospectively. By the time the Bill gets the Royal Assent the retrospection will be that much more acute. There must be serious doubt whether the Bill will receive the Royal Assent in due time——

Mr. Cormack

There may be another Budget.

Mr. Lawson

My hon. Friend may indeed be correct. We are already having great difficulties with the continuous performance of one Finance Bill coming along before another has been enshrined on the statute book.

This subject, along with many other aspects of the Bill, raises the question of indexation. The Opposition have tabled the amendment in an attempt to improve the past situation and to take account of the fall in the value of money, which is a sort of rough and ready indexation. We must, however, look seriously at the whole question of indexation. I hope that we shall look at it more wisely and more responsibly than the Chief Secretary did when the matter came up for discussion during proceedings on a previous Finance Bill when he was tackled on the subject of indexation, tax brackets, tax reliefs and so on. As time passes, smaller and smaller savers are being caught. The trouble occurs lower and lower down the scale. Because certain indirect taxes are not of an [column 500]an valorem nature, there is a huge shift of the burden from indirect to direct taxation without any parliamentary sanction or control in the public interest.

When indexation was raised on that occasion, the Chief Secretary said

“Certainly there will be high levels of inflation, but not in the long distant future, which would be necessary if one were thinking in terms of indexation on a permanent scale—which I am not.”

We are grateful to the hon. Member for his assurance about the long-distant future, but Keynes said that in the long-distant future we should be dead. If something is not done for the long-distant future, there will be a much more serious economic crisis and catastrophe than even the present Government have been able to devise. It is, therefore, not good enough for the Chief Secretary to say—and I am sure he has no crystal ball to help him—that there will be no inflation in the long-distant future and in that way justify his rejection of indexation. The right hon. Gentleman went on to say

“But it would be very difficult if large parts of what a Chancellor had to do was taken out of his hands and matters were much more inflexible in that there was this indexation which decided in advance what the levels of tax would be for whole groups of people.” —[Official Report, 6th May 1974; Vol. 874, c. 1632–3.]

I would have thought that it was elementary justice that the levels of tax whole groups of people should pay should be decided in advance. It is manifestly unjust that people do not know what the effective rate of tax will be on their earnings, and they cannot since no one knows what the rate of inflation will be from one month to the next. This creates total uncertainty. If the Chancellor thinks that this will help him to plan his economy, not that we have seen much sign that it has helped him to succeed so far in dealing with the country's problems, he is thinking manifest nonsense, unless he knows for sure what the rate of inflation will be. He told us before that it was 8.4 per cent., but that did not turn out to be accurate, and I doubt whether he would like to hazard a confident forecast on the rate of inflation over the next 12 months.

Under the present system the Chancellor does not know what the tax yields will be, but he would have a better knowledge of the effect of his measures if [column 501]there was indexation. The truth is that he has a vested interest in getting additional revenue by the back door and in occasionally handing out phoney cuts—they are phoney because they only restore the status quo—from time to time to certain groups of people. The amendment seeks to provide for one group, the small saver with an investment income of £1,000 or £2,000, no more than justice and no less than justice. Of course, some people who are better off might benefit, but it is a poor philosophy to say, that because that might happen the small savers who are totally deserving should not be allowed to benefit at all.

Mr. Norman Lamont (Kingston-upon-Thames)

One of the most remarkable things that was said by the Chief Secretary in the speech from which my hon. Friend has quoted was that he was not happy about the present distribution of income. He implied that he was looking to inflation to redistribute income and that he preferred that it should be done by inflation rather than by Parliament.

Mr. Lawson

My hon. Friend the Member for Kingston-upon-Thames (Mr. Lamont) is absolutely right. I am afraid that the truth is that some of the Labour Members—I hope not all of them but certainly the Chief Secretary—relish inflation. We believe that there are people who must be helped, and that is the aim of the amendment. That is why I hope that it will be accepted by the Government, or, if it is not accepted by the Government, that it will be carried by the House.

But it may be said that this will cost £40 million, and people may ask “How will you find that?” We have no difficulty. First, I trust that later this evening we shall eliminate the £10 hand-out to trades unions which unnecessarily subjected their members' funds to the levy of that amount. That would leave £30 million——

Mr. Cormack

Food subsidies can be cut.

Mr. Lawson

As my hon. Friend says, a modest cut in food subsidies would enable justice to be achieved.

I hope that the Chief Secretary will accept the amendment. If he does not, I hope that the Committee will pass it.

[column 502]

Mr. Peter Rees (Dover and Deal)

First, I must apologise to the Committee for not having heard the whole debate. I gather, however that no case—not even an ineffective case from a sitting position by the hon. Member for Feltham and Heston (Mr. Kerr) who is now leaving the Chamber—has been put either for the clause or against the amendment.

With the clause the Labour Party is pursuing its paranoiac obsession with what it would choose to call capital and investment income, and what I would call savings and savings income. So be it, but let the country recognise the quality of government we have at this crisis in our nation's affairs.

Most classes of our community have been hit by inflation. The Chancellor of the Exchequer has told us that we must all accept a diminution in our living standards. Whether the more powerful sections of organised labour have accepted that remains to be seen. But at least those of our community who are still in gainful occupations have the possibility of cushioning themselves to a degree against this shock and have the possibility of climbing back to their present position after we have passed through the crisis.

However, there is one class which will be affected by the clause and which may be cushioned, to a degree, by the amendment. I refer to those who have retired with a small sum saved with which they have calculated they can spend a dignified and comfortable old age. Many of them were, perhaps, in occupations in which there was no pension provision, or inadequate provision. The company pension is a comparatively recent phenomenon, unfortunately. The self-employed were unable to obtain any tax relief for sums put aside for pensions before 1956. They will be hit particularly by the mean-spirited measure embodied in the clause.

It seems to me, as it must seem to many of my right hon. and hon. Friends, that the self-employed in particular have been singled out as sacrificial lambs to appease organised labour and the extreme Left wing. They are people whom I and my right hon. and hon. Friends meet in our constituencies——

[column 503]

Mr. Cormack

We are proud to represent them.

Mr. Rees

Indeed, because they are people who have given their best, sometimes in public positions after a lifetime in their own occupations and businesses. We are entitled to ask the Government to have some regard for them and to recall that they have made their calculations for retirement. They may have a modest car and a modest house. They have budgeted for a modest standard of living. The incomes of people likely to be affected by the clause are not enormous by present standards. In weekly terms, though the Government always prefer to translate these figures into annual terms, their incomes may not be more than £40–£60 a week gross. I challenge the Chief Secretary to say whether he regards that as excessive.

They have faced a diminution not only in their capital but in their standard of living. They have probably seen their capital not halved but quartered. They have seen their standard of living cut by the increases in the price of petrol. Many of them depend on their cars, particularly if they live in the country districts in my constituency, where there may be no bus service to take them to do their shopping in Deal, Dover or Canterbury.

Mr. David Mitchell

Does my hon. and learned Friend realise that in spite of the importance of the subject to the widows, the elderly, the retired and small business men, not a single Member is present on the Government back benches? It is disgraceful.

Mr. Rees

I am grateful to my hon. Friend for re-emphasing the point I made at the start of my speech. The country may recognise that that shows the depth of concern on the Government benches for the people whose interests we have at heart and which we are trying to ventilate in the debate.

I am not often sorry for the Chief Secretary, but I am sorry for him on this occasion, because on his narrow shoulders he carries a great burden. He has to make a strong case. He alone must carry in this debate the burden of defending what I have described, and will continue to describe, as a very mean clause, and for rejecting a modest mea[column 504]sure of relief. I hope that this fact will be noted outside the House.

The class about which we are particularly concerned face a considerable diminution in their capital and standard of living because of petrol costs, their rates and the cost of their food, coal and fuel oil. Those of us who—dare we say it?—are in the prime of life may live through this crisis. We may climb back to the position we were in before March 1974. We may be able to resume the march of progress, to catch up with our former expectations. But the people of whom I am speaking will not be able to do that. We must be particularly tender of their interests.

I have not seen a glimmer of understanding or sympathy from the Government benches, but I hope that the Chief Secretary, who I believe has listened to the debate, even though he has been carrying on an intermittent conversation with his hon. Friends on either side of him—he may be looking to them for a little moral support that he is not receiving from behind him—will rise above the obsession of his party and acknowledge that the amendment provides a small but distinct measure of justice to a hardly-used group of our community.

Mr. John Loveridge (Upminster)

Some of us sympathise with the Minister, because he has to raise so much money to pay for the Government's programmes. We know that under a Labour Government taxes always have to rise.

The clause seems to be particularly mean, because it singles out for the imposition of additional tax older people who have saved during their lifetime. Many people who have run, for example, a small grocery business and have sold it for £6,000 or £8,000 to live on the investment will find that their lifetime's savings are so heavily taxed that they will be little better off than their neighbours who have been improvident and have not saved. Their hardships will have been worth nothing.

In my constituency there is a group or old people's flatlets where there is strong resentment between some of the old people and their neighbours. Those who have small savings say “We lose our social security benefits. We are hardly any better off than our next-door neighbour. Why should we have done without [column 505]all our lives, why should we have worked so hard? We advise our children” —this is what has been said to me— “to take the easy course—namely, not to study, not to work hard and not to save. We tell them that there is little benefit in it when you become old.”

Sir John Hall (Wycombe)

Does my hon. Friend agree that the Chancellor has added great weight to that advice by saying that he never saves and that if he has any money he always spends it?

Mr. Loveridge

Yes, the Chancellor's comment adds great weight to the point that I was trying to make.

I hope that the Chief Secretary will reconsider this matter. He must know of elderly people who are in the position that we have described. He must have them in his constituency. They must come to him and attend his advice bureaux. They are people who deserve consideration. The small relief that is offered depends upon the age at which one happens to have chosen to acquire a wife. That is rather a peculiar incidence to choose and scarcely offers much relief in any case. Let the Chief Secretary take this matter back. Let him think about it again. We ask for some concession for the old who have saved. They need encouragement, but, above all, the next generation needs encouragement to work hard.

The Chief Secretary to the Treasury (Mr. Joel Barnett)

I have listened to the whole of the debate and I have found it interesting. I have been described as mean, savage——

Mr. Kenneth Lewis (Rutland and Stamford)

There are not many of the Minister's Friends sitting behind him, anyway.

Mr. Barnett

I cannot blame them for that. I have been described as mean, savage, inhuman, vindictive, evil, vicious, schizophrenic and un-British. I hardly recognise myself. [Hon. Members: “We do.” ] I am delighted to hear that.

Sir John Hall

rose——

Mr. Barnett

Not now. I shall give way later. The amendments that we are discussing seek to reverse what we are seeking to do in the clause, namely, to bring back the threshold for investment [column 506]income from £2,000 to £1,000. The second amendment seeks to add another £500 for those over 65 years. I was asked for the cost in a full year. The implementation of the two amendments would extinguish a yield of £40 million and turn it into a loss, in a full year, of £53 million.

Perhaps I should say a little about the background, as did the hon. Member for Guildford (Mr. Howell). The background goes back to the time of unification in 1973–74 when we thought that the then Conservative Chancellor had been far too generous in the relief that he gave to those with investment income. We are now seeking not to remove anywhere near the whole of the reliefs that were then given. For a true comparison we must consider not only the effect of the clause in 1974–75 compared with 1973–74, but the comparison with pre-unification figures before the enormous amount of relief was given by the then Chancellor.

If we take that comparison a single person with an income of £5,000 wholly from investments paid £500 less tax for 1973–74 than for 1972–73. Under the combined effect of the spring Budget and the current proposal such a person's liability will increase by £222, still leaving him with a gain of £278 compared with 1972–73.

There are many more examples of that kind. The comparison is the clear one between what the situation was before such substantial relief was given to those often with substantial investment income and what we are now seeking to do.

Mr. Lawson

Will the Chief Secretary concede that if this hypothetical individual had a constant income—namely, the same income now as in 1972-73—the drop in the real value would be considerably greater than the gain which the right hon. Gentleman is alleging has occurred?

Mr. Barnett

I was going to come to the question of the drop in real income. I now turn to a number of points that have been made on a number of occasions by a variety of Conservative Members in a variety of ways.

Mr. David Howell

rose——

Mr. Barnett

I have not come to them yet.

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Mr. Howell

The Chief Secretary spoke of the background of this issue. He is now slipping with agility over the propriety of the Government's overturning retrospectively the clear decision of a previous Government. This is a most unusual departure, to put it at its lowest, and we deserve some comment on it before the right hon. Gentleman goes on to other matters.

Mr. Barnett

I have listened to every Conservative Member who has spoken an I have just started my reply. I had every intention of referring to the retrospective argument. I am sure that the hon. Gentleman would not imagine—but apparently he did—that I would not comment on that issue. I had no intention of not replying to every point in the debate.

Much has been made about what we are doing in the clause that we are discussing. It is said that we are taxing savings income. It seems that it is only savings income that we are taxing. Perhaps some Conservative Members will accept that not all of it will be savings income. There is just a possibility that some of it will be investment income from other sources. I leave it at that. I take it no further.

Another point that has been made frequently is that it is wrong to have an investment income surcharge. That was a point that was made by a number of Conservative Members. I must point out to them that the last Conservative Government, when introducing unification, did not take that view. As far as I know it is not now the view of the Conservative Front Bench. If it is, I shall be interested to hear that there has been a change of mind.

The amendments seek to change the investment income surcharge as between the £1,000 threshold and the £2,000 threshold. That is what we are talking about. We have reduced the 15 per cent. to 10 per cent. That is a maximum of £100 per person. We are not talking about an investment income surcharge. That is not the issue. I hope that we shall not hear anything about clobbering all savings incomes.

I now turn to the effect of the main part of the amendment. The first £1,000 of investment income will obtain relief that was not available before unification. [column 508]That was when a higher rate than the earned income rate was payable. It has been said that it represents a saving of about £6,000. Of course, it could be about £6,000 if it were invested in a certain way. If it were invested in another way it could be less than that or substantially more. Much depends upon the manner of investment. If the investment were in equities of a certain type the amount could be considerably larger. I am sure that that is appreciated. It is £6,000 or more.

Mr. Lawson

Or less.

Mr. Barnett

I am not arguing about the size of the figure. There need not be any investment. The money might be put underneath a person's bed. Perhaps that is where the hon. Member for Blaby (Mr. Lawson) would prefer to put his money. I know that it is difficult for Conservative Members to understand that even £6,000 is a lot of money to the majority of ordinary working people. It is a lot of money. Many working people would love to be able to save £6,000. The hon. Gentleman should ask that question of postmen, railwaymen and the vast array of working people. It gives un an idea of the way the Opposition think, if they find it hard to understand that a working man today is unable to save £6,000 after a lifetime.

Under the amendment we are talking not only about a man who has saved £6,000 throughout his lifetime but about a man with investment income who has only just started to work, or who may never have worked. We are not talking only about men aged 65 and over. Indeed, that is not the purport of the main amendment.

Mr. David Mitchell

Is the Minister aware, when he refers to the enormous sums saved as being outside the scope and ability of ordinary working men to save, that it represents no more than the saving of £2.50 a week. If that is not what he condemns as being outside the scope of the ordinary working man, he is not in the realm of reality.

Mr. Barnett

I was not condemning saving. I think it is marvellous. However, how is a man earning £25 a week, who has a wife and two children to support, to have the chance of saving £2.50 a week? Opposition Members must listen. [column 509]I listened to every speech made by them. They should do me the courtesy of listening to what I say.

I said that many working people will not be able to save £6,000 by the end of their life. However, we are not talking about the end of their life—we are talking about possibly the beginning of their working life, or even before it starts. Let us be clear what we are talking about.

Given the priorities before us, a concession, in post-unification terms, of £1,000 of investment income being taxed as earned income, is not an unreasonable figure. However, we have recognised a higher figure for those who have saved money throughout their working lives, because we have specified a higher figure for people over the age of 65. The figure of £1,500 is 50 per cent. higher than the figure of £1,000. With that, and with the other relief we have given to the elderly with earned incomes of up to £3,000 a year, we have helped them very substantially. I think that is way to go about it.

The Opposition made a lot of the question of inflation. I make it clear that inflation and what has happened on the Stock Exchange have harmed many people. Of course one understands that.

In deciding whether we should give £53 million of tax relief to a certain group of people, we have to say whether they should be given the concession because of the inflation which has occurred over the past nine months. We are arguing whether that group should be singled out to be protected against inflation.

Mr. Grieve

The right hon. Gentleman used the expression which one always finds on the lips of Treasury Ministers— “Why should we give something?” We do not ask them to give anything, but to refrain from talking away.

Mr. Barnett

I shall be coming to that. The hon. and learned Gentleman will be happy to know that whether we are giving it or taking it away it will certainly reduce the amount of money available to the Exchequer.

Mr. Peter Rost (Derbyshire, South-East)

A good thing, too.

Mr. Barnett

I shall be coming to that as well. The argument about retrospection was raised by a number of hon. [column 510]Gentlemen, starting with the hon. Member for Guildford. Let me make it clear that this is a new Parliament. There is nothing unusual in introducing a tax, during the tax year, in a new Parliament.

The fact that the proposal was defeated in the previous Parliament—because the composition of the House was such that it did not carry sensible legislation introduced by the then Government—is not my fault. I am now concerned with the legislation that we are introducing in this Parliament. It is not use saying that this is retrospective, that it is a terrible thing—as if it has never happened before—and that there are no precedents. There are many precedents.

Mr. Lawson

Quote some.

Mr. Barnett

I shall do that, with pleasure. In December 1973 the Conservative Government announced a surcharge which the Labour Government took over eventually in the Spring Budget of 1974 from the then Government, who would have introduced it. It was announced in December 1973 and introduced in the Spring Budget of 1974. That was retrospective legislation, to which, I hasten to add, I did not object.

Mr. Lawson

I thought that the Chief Secretary would quote that example. There is an important difference. That proposal did not reach back to the period of the previous Parliament, whereas this one does. That was also a one-year-only measure. If the Chief Secretary is drawing a parallel, will he assure us that what he is proposing to do in this clause is in fact for one year only?

Mr. Barnett

I might be prepared to give assurances, but not to the hon. Gentleman, and certainly not on that subject. The proposal will have retrospective effect. In a Written Answer in July, during the last Parliament, I said this would be done.

I now turn to those who will be the beneficiaries of the £53 million. The hon. Member fir Caernarvon (Mr. Wigley), who raised the matter, said that he spoke with an open mind, although it was not clear at the end of his speech that that was the state of his mind. I know his views on these matters. As regards the beneficiaries, we have had many descriptions of the type of people who would benefit from the £53 million [column 511]—the modest savers, the elderly, the small business men, men of modest means, and those kinds of people.

First, let me deal with the £40 million which is the basis of the main amendment. Seventy-five per cent. of the £40 million, amounting to £30 million, will go to those with incomes of over £3,000 a year before tax. Before any hon. Member jumps up to tell me that that is not an enormous figure, let me say that I entirely agree with him. Of course it is not enormous. I am pointing only to the beneficiaries who will receive far and away the greater part of the £40 million. Indeed, £17 million of that sum will go to those with incomes of over £5,000 a year. Those are the kinds of priorities that hon. Gentlemen seem to prefer in their amendments. I must tell them that that is not my priority and I doubt whether it is the priority of many of my hon. Friends.

Many of the people with such amount of investment income, and who would benefit from this relief, are not wealthy. They are hard-working people. many of them resemble the kind of person spoken about by the hon. Member for Basingstoke (Mr. Mitchell)—small business men who have worked hard throughout their working lives in small shops, and so on. I do not dispute that. That is the case. However, given the economic climate, the Committee must consider whether this is the way in which the priorities should work and the way we should seek to spend £40 million. That is the issue before us—not whether all these people are worthy. Of course many of them are worthy. I do not dispute that. However, that is not the issue.

Mr. Mayhew

The hon. Gentleman says that this is how we should spend £40 million. That is a misleading way of putting it. The question is not whether we should spend £40 million but whether we propose to take £40 million away from those people. It is in that context that we have to look at the circumstances in which those people have amassed the capital producing the investment.

[column 512]

[Sir MYER GALPERN in the Chair]

Mr. Barnett

I grant the hon. and learned Gentleman that we could really give back the whole of our tax receipts if we wanted to. It is taxpayers' money, after all. However, that argument is not worthy of the hon. and learned Gentleman.

One or two hon. Members touched upon the financial and economic situation and expressed their alarm at the size of our public sector borrowing requirement and the size of our deficit. However, these two amendments would add to the borrowing requirement to the tune of £53 million.

I come directly to how they would offset that sum. We are told that the way to offset the £53 million it to cut public expenditure. I can understand that, and I could accept it from many people. But it is a suggestion which comes strangely from the Opposition.

On agriculture, for example, the Opposition would seek a considerably higher level of support. On housing, the right hon. Member for Finchley (Mrs. Thatcher) would seek to reduce the mortgage interest rate to 9½ per cent. and to introduce a home saving grant scheme at a cost of £300 million. On law and order, the Opposition have pressed for priority to be given to increasing police manpower, to improved pensions, to a big city allowance, to rewards for long service and to increased expenditure on recruitment. On education, the Conservative Party manifesto said that the party wanted to make all student grants mandatory, at a cost of £200 million, and to reduce parental contributions, costing £30 million. Those aims are all very fine, but they are not exactly ways of cutting public expenditure. As for social security, nothing could be more dishonest than what is happening at present upstairs in Committee, where the Opposition are voting for amendments which would cost very large sums of money. They are opposed to reducing defence expenditure by £300 million in 1975-76 and by £750 million in 1978-79. However, they would offset the £53 million addition to the public sector borrowing requirement resulting from these amendments by cutting public expenditure. I [column 513]shall believe that when I hear some serious arguments. We have had none.

Mr. Lawson

What about food subsidies?

Mr. Barnett

That is very interesting. The Opposition would rather give £30 million to those with incomes of more than £3,000 a year, and they would increase the price of bread to do it. If that is the policy of the Opposition, with which the hon. Member for Caernarvon agrees, I am extremely surprised.

Mr. Ioan Evans (Aberdare)

My right hon. Friend has given the Committee a catalogue of the additional public expenditure suggested by the Opposition. However, they also want to increase defence expenditure and to abolish the rating system by putting the cost on to the National Exchequer.

Mr. Barnett

I was trying to save a little time. I hope that my hon. Friend will forgive me if I do not mention all the items on which the Opposittion wish to increase public expenditure.

It must be clear that this cannot be the way to increase the public sector borrowing requirement by £53 million. There may be other ways, but this cannot be the one, and therefore I ask my right hon. and hon. Friends——

Mr. Wigley

Those of us who advocate not hitting people who are dependent on investment income and who are in the lower scales, albeit that they will only get a fraction of the money proposed to be spent on these amendments, would not suggest that it be taken from food subsidies. We would propose cutting defence expenditure even further. But, in any event does the right hon. Gentleman believe that this package in total will help increase or decreases capital formation in the economy?

Mr. Barnett

I was about to conclude my remarks. This is an enormous question, and I hope that the hon. Gentleman will forgive me if I do not deal with it in detail. I accept that he does not want to take the money from food subsidies and that he would prefer to take it from defence expenditure. However, that is not the view of the Conservative Party——

[column 514]

Mrs. Kellett-Bowman

Answer.

Mr. Barnett

I have answered the hon. Gentleman, and I believe that I have replied reasonably fully to the debate. I listened carefully to all the speeches. I hope that I shall be forgiven for saying that these amendments have no justification. If the Opposition divide the Committee, I urge my right hon. and hon. Friends to vote against the amendments.

Mrs. Margaret Thatcher (Finchley)

Seldom have I listened to a more unsatisfactory reply to a debate, and seldom have I heard one which angered me more.

First, cannot we get it across to Joel Barnettthe Chief Secretary that he is taking away £40 million from these people by his action and not giving it to them? He argues about the public sector borrowing requirement. We had the same argument all through our debates on the last Finance Bill, in the course of which Government spokesmen gave the impression that every amendment would add to the borrowing requirement, which was then about £3,000 million. No one revealed at that time that it must have been greatly in excess of £3,000 million. We cannot suddenly have had an additional £3,000 million added between July and November when Denis Healeythe Chancellor of the Exchequer announced that it was £6,000 million. No one using that argument to such bad effect then has the right ever to be believed about it again.

Secondly, I return to the argument about retrospection. This is the most savage form of retrospection that I have ever encountered. The precedent which the Chief Secretary gave for it is not precedent at all. I cannot find a precedent, and clearly the right hon. Gentleman has not been able to find one.

Let us consider what has happened. In the last Finance Bill the then Government attempted to fix the rate of tax applicable to these people for this year. That subject was fully and exhaustively debated in this House. It was decided upon, and these people then thought that they knew where they were for their tax this year, and that they could budget. Many of them are used to budgeting. They would not have saved what they have if they had not been. They knew where they were, and they could make their budgets accordingly. [column 515]

There is no precedent that I have been able to find for, within six months of a decision, another Government's saying, in respect of the same tax and the same year, “We intend to put it up. We shall make you pay £40 million more than you budgeted for.”

I ask right hon. and hon. Members to consider the time at which the Chief Secretary proposes to exact that additional £40 million. It was in a Budget which put up local rates. My hon. Friends the Members for Bridgwater (Mr. King) and Norfolk, South (Mr. MacGregor) joined me many time in pointing out the greatly increased rates which people in rural areas had to pay. Many of the people whom we are discussing at the moment live in rural areas. Not only have they to pay additional tax; they have also to pay additional rates, and I have received many letters saying that money that had been put aside for additional rates would now have to be used to pay more tax.

The Chancellor of the Exchequer is often very fortunate in the reasonable cooperation that he gets from the Opposition on reasonable economic matters. However, he must understand that this proposal was also in a Budget which increased the rates for gas, electricity and postal charges, because it was necessary to reduce the nationalised industry deficit.

The proposal comes at the very time when people are suffering from inflation, which is a bad enough tax on its own, and many have no thresholds, full or partial, to make it up. They are suffering from a new policy to eliminate nationalised industry deficits. It is at this time that the Chancellor of the Exchequer proposes an additional tax, although this House has already said, this year, that it shall not do so.

Undoubtedly, it is constitutionally technically correct, otherwise we should not be discussing it. I can only say that it is constitutionally amoral, and had it been put to me as a Minister I would not have done it, this House having already decided. The argument that it is technically correct shows that hon. Gentlemen opposite have no argument whatever to suggest. Do they believe that people who have to pay extra rates and extra electricity charges, and who have budgeted not to pay this extra, will be as technical as hon. Gen[column 516]tlemen opposite? Those people will have to pay this out of their pockets.

The Chief Secretary argues that there will be extra relief, but many people who are adversely affected by the clause will not get extra relief. Even that argument is not valid, for they will have to wait till next year for the extra relief, although the extra taxation penalty comes this year and is in respect of this year.

Mr. Joel Barnett

But payable next year.

Mrs. Thatcher

It is in respect of tax this year, even though it does not have to be paid until next year. The Chief Secretary knows that. But there are many people who will never get an age relief who are adversely affected, and particularly badly affected, by this clause. All the disabled who are under 65 will now have their income subject to an extra surcharge if it exceeds their savings income when it is more than £20 per week. All who have had to retire prematurely, or who have been made redundant—widows, deserted wives and others—and who have a savings income of £20 per week in those categories and are under 65 will stand to pay 43 per cent. taxation at the twenty-first pound—and there is no sympathy from the Chief Secretary for those people. We would wish to show them good will and sympathy.

Many time from the Dispatch Box I have seen Treasury Ministers in difficulties when asked to give some extra relief which, apart from a tiny one, we are not asking now; and frequently they have said, “I would like to do this. I recognise that there is inflation and that some people are in difficulty, but I cannot.” That is not the position now. The Chief Secretary is being asked not to give extra relief of any significance but to leave things where they are and to stop imposing an extra penalty. When he is asked to defend this tax he has no answer when we say that he is clobbering people who have saved all their lives, or whose fathers saved for them and then did an awful thing—handing those savings to their children. It might have been an owner-occupied house whose value was inherited by the children and which probably came from savings income in the first place. [column 517]

When we say these people have suffered enough and we ask the Government to help them, the Chief Secretary says, “We intend to make them suffer” . That is his only defence. He says, “We intend to impose an extra penalty” . There is no reason whatever for doing so. He then says he would like savings income, but the Government would prefer savings in the form of Government savings—in taxation—and investment or capital formation in the form of Government investment or capital formation, rather than getting property widely distributed in the hands of the people. As John Pardoea right hon. Gentleman said from the Liberal bench during the debate last year, a society in which savings and investment are carried out through the Government will soon cease to be a free society.

This Government hate the wide distribution of private property and dislike people enjoying the fruits of saving income. We certainly shall press this amendment to a Division. I had hoped we should get a good deal more sympathy from the Chief Secretary than we have had. Indeed, we have not had nay at all. If we are not successful with this amendment the Opposition undertake to reverse this clause when returned to power and thereby to keep the present starting point for the imposition of the additional rate of tax on investment income. We shall also consider further relief, together with the wider question of indexing tax levels. I hope that all my hon. and right hon. Friends will show their displeasure with the Chief Secretary's reply and their support for the savers of Britain by voting for the amendment.

Mr. John Pardoe (Cornwall, North)

Having moved the original amendment on 16th July last, an amendment which has already been referred to, I would like to comment on the Chief Secretary's speech, which I found far less than adequate as a reply to the whole wide-ranging case which has been made on the question of investment income.

Although some hon. Members who have spoken from this side of the House have endangered the Conservative Party [column 518]by making it seem to be a middle-class protection society. I have no intention of going along that road, but the right hon. Gentleman the Chief Secretary replied in just such typical class terms and this is not a class debate. This amendment was not about the middle classes last July, nor is it now.

The Chief Secretary says we are not discussing savings income but investment income. He distinguishes between the two. It used to be called unearned income. We have moved on a pace and have another euphemism. Now he calls it savings income. It may well be that we ought to distinguish between income from inherited wealth and income from wealth which is savings over the course of a lifetime. That is, no doubt, a debate we shall be able to have in the Select Committee on a wealth tax.

There are those who derive their savings not only from private savings under their own auspices during their lifetime but from a bona fide pension fund. I hoped we could persuade the Government, if they will not take a step in our direction on the whole of the amendment, at least to make some concession on that level. I would simply point out to the Chief Secretary that the pension fund of the Association of University Teachers is a pension fund that permits one to take out a lump sum and invest it. The Chief Secretary is saying that anyone who takes out a lump sum will be taxed at an increased rate, whereas the person who leaves it in, drawing it from the pension fund and trustees, will get a lower rate. The Chief Secretary did not even begin to make a justification for investment income as such.

They only argument he advanced is one that, as he will realise, does not appeal to me—that the Conservatives did it, too. That is less than an argument. On the question of retrospection the Chief Secretary is perfectly right to say that one Parliament can change what another has done, but in the course of a financial year I would have thought we could at least leave well alone what is done in that one year. It so happens that Parliament in its wisdom—and it was its wisdom—overruled the executive last time. That was a terrible shock to the system and [column 519]the establishment. Parliament had got out of the way of controlling the executive, but because, for once, the electoral system worked to the advantage of the British people and of democracy in February last we were able to control the executive, to change legislation, to change the tax legislation of this place, in line with the wish of Parliament rather than that of the executive, and we did so.

The Government now say that have a mandate to change that. They have no such thing. They are denying the sense of the people in this country. But the argument works both ways. When the Leader of the Opposition today tells the Government they have less than 40 per cent. support he really must follow that through.

This legislation is being proposed today by the Government and it will be carried because they will probably win the vote. I shall certainly vote against them, but it will be enacted till all who are to pay this increased investment income surcharge realise why. It is because we have a crazy electoral system. If we had the right electoral system we would not have the kind of class legislation and the Left-wing Trotskyite nostrums we get out of the Labour Party.

Mr. Gwilym Roberts (Cannock)

I am interested in the hon. Gentleman's comments on the electoral system. Would he like to tell me how many Liberal—[Interruption.]

The Deputy Chairman

Order. The hon. Member was making a passing reference to the electoral system. I am not going to permit any discussion of the electoral system on this amendment.

Mr. Pardoe

You are absolutely right, Sir Myer.

I am glad that the Leader of the Opposition is now here. All I was pointing out was, that with an intelligent electoral system we would not have a Marxist dominated Labour Government and we should be able to secure our way today.

The Chief Secretary referred to the borrowing requirement and said that the Government were all in favour of increasing public expenditure. I remind [column 520]the right hon. Gentleman that in the debate on 16th July he referred to the Opposition's determination to spend money and to our determination to reduce taxes by an extra £300 million on advance corporation tax. It is within the memory of many right hon. and hon. Members that the Chancellor of the exchequer thundered in the Chamber about the Opposition's right to overturn the Government's Budget judgment.

I am glad that the right hon. Member for Carshalton (Mr. Carr) is here. What a pity it was that all of us did not have the courage of our convictions on that day and stand firm on the parliamentary control of the executive, because then many British companies would not be in the mess they are in now and the Government would not have had to eat their words as they have had to since then. So let us not have any nonsense from the Government about increasing the borrowing requirement.

We are talking about a cost of £53 million. It is the Government who are changing the situation, not the Opposition. We changed it last time and we got our way. These people are not wealthy. They do not have to be asked to pay for the social contract, which is really the argument behind the Government's whole case. These are not people who should pay for the social contract.

It priorities are to be put forward as to the use of this money, let me try a priority on the financial sector. It may well be that there are people in this country more deserving of concessions than some of the people who would benefit from this concession, but does the hon. Gentleman really believe that the 614 under-secretaries in Whitehall are more deserving of an increase of £3,000 a year than are the people who would benefit if we were able to carry this amendment today? If we are to deal in the language of priorities, anybody can quote his own.

I am merely saying to the Chief Secretary that it does not seem to me that he has made his case. I ask the Government to leave well alone. It was a good day for Parliament when we carried that amendment on 16th July, and we should be allowed to keep it that way. [column 521]

Question put, That the amendment be made:— [column 522]

The Committee divided: Ayes 256, Noes 267.