(c) crown copyright
Catalogue Reference:cab/66/22/19
Image Reference:0001
HIS
S E C R E T .
ycovY NO..
W.P.(42)89.
1 7 T H FEBRUARY,
1942.
WAR
T J N K T T n T j W n ^ ^
Memorandum by t h e
CABINET.
T
A
X
0
N
WEEKLY
Chancellor
of
WAGE-EARNERS.
the
Exchequer.
The w o r k i n g of t h e e x i s t i n g s c h e m e f o r t h e d e d u c t i o n
of income t a x from w a g e s h a s b e e n u n d e r r e v i e w f o r some
time p a s t by a departmental committee which has in
p a r t i c u l a r c o n s i d e r e d t h e two main p o i n t s a g a i n s t which
c r i t i c i s m has been l e v e l l e d ,
namely:­
1 .
The d e l a y i n b r i n g i n g d e d u c t i o n s i n t o f o r c e w h i c h
h a s r e s u l t e d i n many c a s e s i n d e d u c t i o n n o t
commencing at t h e f i r s t pay day i n the 24-weekly
p e r i o d of d e d u c t i o n ;
and
2 .
The p o i n t s t r e s s e d b y t h e M i n i s t e r o f ' L a b o u r a n d
N a t i o n a l S e r v i c e , t h a t i n t h e c a s e of s e a s o n a l
e m p l o y m e n t s w h e r e t h e e a r n i n g s i n t h e summer a r e
at a higher level than the earnings in the
winter
t h e h i g h t a x c o r r e s p o n d i n g t o t h e summer p a y i s i n
p a r t r e c o v e r a b l e from t h e low p a y of w i n t e r m o n t h s .
T h i s r e v i e w h a s made c o n s i d e r a b l e , p r o g r e s s and I
h o p e t h a t I s h a l l b e a b l e i n my B u d g e t s p e e c h t o a n n o u n c e
some c h a n g e s , t h e d e t a i l s o f w h i c h w i l l t a k e i n t o a c c o u n t
what i s known of t h e v i e w s of t h e T c U . C . and t h e e m p l o y e r s .
I s h a l l be v e r y h a p p y t o t a k e t h e M i n i s t e r of L a b o u r and
N a t i o n a l Service into c o n s u l t a t i o n as soon as I have
c o m p l e t e d my c o n s i d e r a t i o n o f t h e w h o l e t o p i c a n d am i n a
p o s i t i o n t o f o r m u l a t e my B u d g e t p r o p o s a l s .
So f a r a s t h e
q u e s t i o n r e l a t e s t o t h e i n c i d e n c e of t h e t a x i n t h e c a s e
of h i g h summer e a r n i n g s a n d low w i n t e r e a r n i n g s t h e i s s u e
does not a r i s e u n t i l next January
when, under the e x i s t i n g
s c h e m e , t a x w o u l d f a l l t o be d e d u c t e d i n r e s p e c t of t h e
(earnings for the six months to the 5th October,
1942.
$ T h e r e s a n be no q u e s t i o n o f a l t e r i n g t h e d e d u c t i o n s
that
; a r e now b e i n g made i n t h e c u r r e n t s i x m o n t h s commencing;
I on t h e 1 s t J a n u a r y
last.
W h i l e I do n o t w i s h a t t h e moment t o e n t e r i n t o a n y
d i s c u s s i o n of t h e m e r i t s of t h e v a r i o u s c h a n g e s t h a t
are
under c o n s i d e r a t i o n I must say t h a t i t seems f a i r l y
clear
t h a t a scheme u n d e r w h i c h t h e d e d u c t i o n of t a x w o u l d b ­
d i r e c t l y r e l a t e d t o t h e a m o u n t of t h e c u r r e n t e a r n i n g s "
is quite impracticable,,
^ 8 * *
7fi T-he M e m o r a n d u m b y t h e M i n i s t e r o f L a b o u r ( W . P . ( 4 2 ) 7 8 )
r a i s e s two i s s u e s w h i c h a r e i n d e p e n d e n t of t h e w o r k i n g of
t h e Tax D e d u c t i o n Scheme a n d r e l a t e r a t h e r t o t h e m e a s u r e
of t h e l i a b i l i t y , n a m e l y - t a x a t i o n o f o v e r t i m e e a r n i n g s a n d
t h e t a x a t i o n o f m a r r i e d women i n e m p l o y m e n t .
The s e c o n d
i s s u e i s one which I have a l r e a d y u n d e r c o n s i d e r a t i o n and
2 expect t o be able to d e a l w i t h i t i n t h e f o r t h c o m i n g Budget.
The o t h e r i s s u e i s t h e i s s u e w h i c h h a s b e e n r a i s e d b y t h e
Clydesidej
The N a t i o n a l S h i p b u i l d i n g Shop S t e w a r d s h a v e
p r o p o s e d t h a t o v e r t i m e e a r n i n g s be f r e e of income t a x .
I am
n o t p r e p a r e d t o e n t e r t a i n a p r o p o s a l f o r t h e e x e m p t i o n of
o v e r t i m e p a y , a n d I s e e no g r o u n d on w h i c h i t c o u l d b e
maintained t h a t overtime pay should be r e l i e v e d from the
same c h a r g e o f i n c o m e t a x a s a p p l i e s t o o r d i n a r y p a y .
Piece­
work e a r n i n g s a r e a n o t h e r way o f e n c o u r a g i n g p r o d u c t i o n
but nobody would s u g g e s t t h a t income t a x s h o u l d n o t be p a i d
on s u c h e a r n i n g s .
The p r i n c i p l e t h a t n o p r o f i t
should
be made o u t o f t h e war i s a p p l i e d i n t h e c a s e of t h e e m p l o y e r
by t a k i n g away by t h e 1 0 0 p e r c e n t . E x c e s s P r o f i t s c h a r g e t h e
w h o l e o f t h e a d d i t i o n a l p r o f i t w h i c h may a r i s e t o h i m , and I
s e e n o r e a s o n why t h e s i m i l a r e a r n i n g s o f t h e w o r k e r s h o u l d
be r e l i e v e d f r o m an income t a x c h a r g e w h i c h i n no c a s e e x c e e d s
a l i a b i l i t y of 9 / - i n t h e £.
I do n o t b e l i e v e t h a t l a b o u r g e n e r a l l y w o u l d s u p p o r t a
c l a i m t h a t t h e wage e a r n e r w i t h a g i v e n income s h o u l d p a y l e s s
t a x t h a n any o t h e r t a x p a y e r of s i m i l a r income and w i t h t h e
e x c e p t i o n of t h e S h i p b u i l d i n g Shop S t e w a r d s no r e p r e s e n t a t i v e s
of l a b o u r h a v e p u t f o r w a r d a p r o p o s a l f o r d i f f e r e n t i a t i n g
in
f a v o u r of t h e w a g e - e a r n e r .
Indeed t h e r e have been no
r e p r e s e n t a t i o n s from organised labour (other than the Clydeside
Shop S t e w a r d s ) r e g a r d i n g t h e w o r k i n g of t h e t a x d e d u c t i o n s c h e m e .
N e i t h e r t h e T . U . C . n o r any i n d i v i d u a l Trade Union h a s made any
p r o t e s t - b u t r a t h e r have g i v e n t h e scheme g e n e r a l s u p p o r t .
I
t h i n k t h a t t h e r e a l g r o u s e i s no more t h a n t h e g r o u s e t h a t
income
taxpayers always have about the tax though in the end i t
is
willingly paid.
When o n e b e a r s i n m i n d t h e h e a v y i n c r e a s e
made i n t h e i n c o m e t a x b i l l o f a l l t a x p a y e r s a n d t h a t
there
a r e now a b o u t f i v e a n d a h a l f m i l l i o n l i a b l e w a g e - e a r n e r s
w h e r e a s l a s t y e a r t h e r e w e r e o n l y two a n d h a l f m i l l i o n s - t h r e e
m i l l i o n new p a y e r s - one m i g h t h a v e f e a r e d a much more w i d e s p r e a d
and s e r i o u s c o m p l a i n t .
In f a c t the complaint i s local
and i n d i v i d u a l r a t h e r t h a n g e n e r a l .
F i n a l l y , a s r e g a r d s t h e w o r k i n g of t h e
tax'deduction
scheme i t - m u s t n o t be f o r g o t t e n t h a t t h e t a x d e d u c t i o n scheme
s p r e a d s o v e r s i x months a b u r d e n of t a x w h i c h was o r d i n a r i l y
p a y a b l e i n one sum and c o u l d h a v e b e e n s p r e a d o n l y o v e r t h r e e
months u n d e r t h e m e t h o d of p a y i n g by s t a m p s t h a t
hitherto
o b t a i n e d 0n
.
The s p r e a d of s i x m o n t h s t a x o v e r s i x m o n t h s f o r
3fti?8
?f ^
o ^ e r that the tax should be c o l l e c t e d i n
manner t h a t r e c o g n i s e s t h e weekly ouaget.
T h e r e may be r o u g h e d g e s s t i l l t o b e s m o o t h e d o u t
w?r.?^ e
£
S d i f f e r e n c e b e t w e e n summer and
SS
a n
h i
l s
o f t h e m a t t e r s t h a t I hale a t
-fitsent under
c o n sVi d e r?a t. i o n ,
t
h
t
h
e
m
a
i
n
c
l
a
i
m
o
f
t
h
e
a
e S
W
h
8
t
h
e
e
i
s
a
b
i
llTstnt Z^ ,
( I n t l d o )
Peat George
Street,
17TH FEBRUARY,
S.W.lo,
1942.
K.-W.
w