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6.28 pm
Mr. Robert Sheldon (Ashton-under-Lyne): The right hon. Member for Fylde (Mr. Jack) did not welcome the introduction of the 10p starting rate of income tax. I take a longer view of such matters. I look on it as an early instalment of what I hope will be a more progressive tax system which will in due course be made possible by self-assessment.
To me, the most important part of the Finance Bill and the aspect that I particularly welcome is the ending of mortgage interest relief and the married couples allowance, and the use of that money for industry, children and the introduction of the 10p rate, among other measures.
Why have we had mortgage interest relief for so long? What was it for? We all know that housing is a necessity; the need for a roof over one's head and the need for basic
amenities are therefore a case for subsidy--or at least for freedom from certain forms of taxation. In common with other forms of expenditure, however, once those essential needs have been met, further expenditure becomes not a necessity but an option.
If a person lives in a small council flat or house, that needs to be subsidised, or at least to be outside the tax system. A person must be housed. If that person has funds available for more expensive and comfortable housing, at some stage such housing must be seen, if not as a suitable subject for tax, at least as a suitable subject for the removal of any element of subsidy. It is an anomaly that sumptuous housing has been given substantial subsidies, while the fitting out and furnishing that are part of that more expensive move are not subsidised but taxed, mainly at the rate of 17.5 per cent. That needs to be included in the consideration of all aspects of subsidies set against taxation.
Moreover, the number of anomalies has increased rather than being reduced. For a house owner, expenditure on housing is treated as an investment comparable with other forms of investment. Dealing with that was the main purpose of the old schedule A income tax, which attributed notional income from the ownership of a house and treated it in the same way as income from other forms of investment. That tax, which was always modestly assessed, constituted at least an attempt to balance expenditure that produced a benefit with the return on other investments that produced dividends. It is supremely nonsensical that investment in a company that creates employment, and enriches the community through its overseas sales and by providing and using industrial and technical expertise, should be taxed, while the use of funds to improve a person's life style is not only not taxed, but subsidised.
House ownership provides other forms of subsidy. When capital gains tax was introduced, people's main residences were exempt, which ratcheted up the financial advantages of purchasing a house. As a result, many people now look to a housing ladder of opportunity, not just to improve their comfort or convenience--which is subsidised--but to enrich themselves by engaging in a purchase whose profits will not be taxed. Of course such moves have always been made, and no one can fault them; but encouragement has been introduced on a grand scale, and, to a large extent, house price inflation has been a consequence of that.
On top of all the advantages that I have mentioned, mortgage interest relief confers the ability to borrow at a subsidised rate to secure the benefits involved. The Chancellor of the Exchequer was right to remove one of the greatest distortions in the tax system, and I applaud him unreservedly for doing so. The other distortion that he is removing, by means of clause 28, is the married couples allowance.
Before the war, income tax was essentially a tax on the middle class. On marrying, a woman--even if she had been working--was expected to stay at home to look after the home and the children. Indeed, in the case of many professions and occupations, she was debarred from continuing in her job. The banks traditionally provided jobs for middle class women. There was no glass ceiling for those who married; they received the bank's good wishes, and their employment automatically ended. In the
case of many couples, there were not two earners. The taxable capacity of the single earner was reduced, and the tax laws took that into account. Looking after his wife was a financial burden for a man.
The war brought about a number of important changes in the taxation structure. The amount of overtime worked took many employees into the income tax structure, which now applied not just to the middle class, but to many members of the working class. That led to the pay-as-you-earn system. There was a need for married women to be brought into the work force, which meant that the disincentive caused by the removal of the wife's allowance on her taking up of employment had to end. The allowance therefore continued, although the working wife no longer represented the financial expense for which the allowance had been intended to provide. That nonsense has persisted for 60 years--up to the present time, when 67 per cent. of wives work.
Having children is an expense that reduces taxable capacity. The child tax allowance took account of that in the same way as the wife's allowance took account of the reduction in the taxable capacity of the earner. In this instance, whether or not the partner of the earner is working, the child and its needs will clearly reduce the taxable capacity of the family. On that principle, when child benefit was introduced in 1976-77, an agreement was made between the main parties that it would not count as public expenditure. I am therefore sorry to note the apparent uncertainty in the Opposition's attitude to some of these matters. Nowadays, I am much more relaxed about the distinction between tax reliefs and negative expenditures: if it proves satisfactory, I am happy to accept it.
I believe that the fundamental principle of taxation is taxable capacity, which refers to the income that is available after all essential expenditures have been allowed for. That, of course, begs the question of what is "essential", but, as Members of Parliament, it is a question that we must assess ourselves. A consequence is that actions that reduce taxable capacity ought to be considered for tax allowances, or concessions of some kind. I think it right to bring the matter into the open now, while we are discussing two clauses that have such a bearing on it.
We all know the position relating to employees' expenses that are allowable against income tax only when they are wholly, exclusively and necessarily incurred. Little difficulty is involved in dealing with expenses that are wholly and exclusively incurred, which must remain eligible for tax relief; the problem arises with the condition of their having to be necessarily incurred. The trouble with that condition is that employees are not often in a position to pick and choose. It is often a case of, "Do you take this job or not?"
People used to work close to where they lived. They would live around the corner from the pit, the mill or a factory that dominated the local scene. That is not the case today, however, and we need to deal with the anomalies in expenditures that are incurred in what is defined as earning a living. The main expenditure is caused by the cost of travel to work, which has increased substantially, especially for those with fairly modest incomes, who used to work locally.
Today, people travel distances that used to be typical only in London. A number of my constituents travel daily across the Pennines to Bradford and Leeds, a regular
journey which would have been inconceivable 20 or so years ago. The travel-to-work area has expanded and continues to expand as people seek job opportunities where they can be found. There must be a strong case for recognising that, and recognising the need to take it into account in the tax structure.
I know the difficulties. I understand the nightmares that the Inland Revenue would experience if a breach of the rules were sanctioned. In the context of returning people to work, however--an important element of the Budget and the Bill--the problems need to be addressed.
There are other expenditures. People must wear reasonable clothes to work. That used not to be the case: many people who worked in the pit or the mill could wear what they liked.
Mr. Burnett:
As the right hon. Gentleman will know, expenses incurred in travel to and from work are not allowable in the case of either schedule E or schedule D employees. Not even self-employed people are allowed to claim them against tax. Is the right hon. Gentleman aware of the huge cost that such an allowance would generate in revenue terms?
Mr. Sheldon:
I am not asking for an allowance; I am merely saying that the facts need to be recognised in some way.
I was talking about clothing. In a famous case, a barrister's clothes were deemed to be allowable as an expense. As for meals, workers used to take a jam butty to work, but nowadays more substantial meals are involved, which means further expenses.
Mr. Cousins:
Does my right hon. Friend not think that the Government have for the first time begun to recognise return-to-work expenses? Introducing to income support a provision under which lone parents who return to work under the Government's policies and schemes retain income support payments for the first two weeks of their return to work acknowledges the costs of going back to work. I accept that that is but a small step, but does he agree that recognising such expenses for the first time is important?
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