(c) crown copyright Catalogue Reference:cab/66/22/8 Image Reference:0001 raff. / / COPY TO. W.P.(42)78 13;th February,. 194-2o vTAR CABINS ' E f f e c t of Income Tpjcjai t h e Weekly Wage-earner, Haaornndian by t h o M i n i s t e r of Labour and N a t i o n a l Servicep . I n Deccmbor I informed my c o l l e a g u e s on t h e Lord P r e s i d e n t ' s Committee of 1 the u r g e n t need, i n my view, f o r a thorough examination of t h e whole q u e s t i o n of t h e Income Tax c o l l e c t i o n e s p e c i a l l y from w a g e - e a r n e r s , and I drew a t t e n t i o n t o c e r t a i n s p e c i f i c p o i n t s wliich seemed l i k e l y t o cause d i s s a t i s f a c t i o n and u n r e s t i f t h e method of a p p l y i n g t h e t a x t o t h e new c l a s s e s was n o t m o d i f i e d , There i s growing evidence of resentment a g a i n s t t h e a l l e g e d i n j u s t i c e s i n h e r e n t i n t h e p r e s e n t system, and t h i s is-bound to have a s e r i o u s e f f e c t on p r o d u c t i o n , YJithin t h e p a s t for/ days a r e s o l u t i o n has been p a s s e d by a mass meeting of Shop Stewards on t h e Clyde i n favour of an embargd on a l l overtime a s from 1 s t March i f ' adjustments . a r e n o t made t o meet r e a l grievances^ The view of many t r a d e union o f f i c i a l s i s t h a t t h e main cause of discouragement i s t h e f a c t t h a t t h e c u r r e n t t a x . i s - r e l a t e d t o p a s t earnings and t h a t t h e main g r i e v a n c e ­ would b e - n e t i f t h e t a x was-paid on c u r r e n t . e a r n i n g s l e a v i n g f o r l a t e r ' s e t t l e m e n t , minor adjustments between i n d i v i d u a l s * I aa bound, t h e r e f o r e , , t o state,,.:with t h e utmost emphasis, my c o n v i c t i o n t h a t t h e p r e s e n t system as i t * a p p l i e s t o t h e weekly wage e a r n e r must b e modified and I ask t h a t a Committee should b e a p p o i n t e d t o r e p o r t ' u r g e n t l y on improvements which could b e made w i t h t h e view t o t h e i r i n c l u s i o n i n the forthcoming b u d g e t , C : ? 2. I r e g a r d i t a s of t h e utmost importance t h a t a d e c i s i o n b e taken on t h i s m a t t e r , and a suitableaunnouncement made a t t h e e a - r l i e s t o p p o r t u n i t y ^ 9 ? 3* I t may be convenient i f I i n d i c a t e to my c o l l e a g u e s t h e a s p e c t s of t h e p r e s e n t system which give r i s e t o a sense of i n j u s t i c e , and in-some c a s e s cause h a r d s h i p and discouragement of f u l l support f o r war productions. (a) Tax b a s e d on e a r n i n g s f o r t h e p e r i o d A p r i l t o September i s deducted i n t h e subsequent p e r i o d J a n u a r y t o J u n e , Thus t h e r a t e of t a x .".V' . i s i n c r e a s e d a t t h e time when e a r n i n g s i n many v i t a l trades.) ' particularly s h i p b u i l d i n g , b u i l d i n g and docks, a r e . a t t h e i r lowest*. On t h e o t h e r hand when e a r n i n g s a r e a t t h e i r peak i n t h e summer-, t h e .­ r a t e of t a x w i l l b e reduced^ - ' ; . (b) Again owing t o t h e delayed a c t i o n i n t a x c o l l e c t i o n ^ the. t a x becomes. . a d e b t t o be p a i d b y men who have ceased to earn wages at. taxable'.: .' . . ; , . . . l e v e l , e , g . , men who a r e r e q u i r e d t o j o i n the- S e r v i c e s J . men. who. a r e i n j u r e d i n t h e c o u r s e of t h e i r employment or become s i c k or a r e c c m p u l s o r i l y t r a n s f e r r e d t o lower p a i d employments . Unless t h e , t a x can b e deducted immediately i n r e s p e c t of t h e c u r r e n t e a r n i n g s , , tho p r e s e n t , s e r i o u s p o s i t i o n Tall c o n t i n u e and "will become'more a c u t e when earnings, f a l l as overtime and Sunday work a r e reduced and ­ f i n a n c i a l . embarrassment w i l l b e w i d e s p r e a d , ( c ) Although t h e r e i s a l e v e l below which wages cannot "be reduced i n ' any Week (£1,17*6d.. f o r a s i n g l e man and £2.17*63.* f o r a m a r r i e d man), t h e r e i s no l i m i t on. t h e p r o p o r t i o n of income which may be deducted in., any week. Accordingly; a m a r r i e d man whose s t a n d a r d of l i v i n g i s a d j u s t e d t o an income of £6 a week, may f i n d t h a t owing to a r r e a r s . o f tax., his. wagp i n a p a r t i c u l a r week may b e reduced b y more than half* Moreover a m a r r i e d man has t o make formal a p p l i c a t i o n b e f o r e he becomes ' e n t i t l e d t o t h e h i g h e r l e v e l of £2,17*6d* . (d) I t i s . no doubt, l o g i c a l t h a t a l l overtime and payment f o r Sunday work should b e t r e a t e d as a d d i t i o n a l income which i s sub j e c t t o tax* - There i s , however, a frig p s y c h o l o g i c a l d i f f e r e n c e between' t h e t a x on o r d i n a r y weekly remuneration and t h e "tax on t h e payment made f o r t h e e x t r a e f f o r t i n t h e i n t e r e s t s of p r o d u c t i o n whieh overtime and Sunday woxk r e p r e s e n t . Seme way must be found of r e c o g n i s i n g t h i s d i f f e r e n c e between o r d i n a r y income and income duo to s p e c i a l e f f o r t s made b e c a u s e of t h e u r g e n t noeds of war ' ­ production., - ­ : ' -' ( e ) Married women a r e b e i n g asked to. r e t u r n t o i n d u s t r y or to t a k e wage, e a r n i n g employment f o r the f i r s t t i m e . The o p e r a t i o n of the- income t a x arrangements!-is a d e f i n i t e discouragement, as a l a r g e p r o p o r t i o n of t h e e a r n i n g s i s t a k e n i n income t a x i f t h e husband has a l r e a d y . e x h a u s t e d t h e b e n e f i t of t h e p e r s o n a l a l l o w a n c e s . Also i t i s made t o appear t h a t t h e wife pays more i n t a x a t i o n than h e r husband i n r e l a t i o n t o h e r wages. -,- '; , 4* These a r e some of t h e q u e s t i o n s which c a l l f o r - u r g e n t examination .and adjustment. I n a l l t h e s e c a s e s t h e r e a l essence of the m a t t e r , i s t h a t , t h e wage e a r n e r budgets on t h e b a s i s of h i s ' weekly e a r n i n g s * -. He judges '. t h e o p e r a t i o n of t h e Income Tax system b y - i t s immediate e f f e c t on h i s ' weekly pay p a c k e t end he i s n o t consoled b y a s s u r a n c e s t h a t , taken over, a p e r i o d of s i x or twelve months, t h e B r i t i s h system of t a x a t i o n i s t h e most' e q u i t a b l e t h a t can b e d e v i s e d . I t i s p o s s i b l e t o remove m i s u n d e r s t a n d i n g about t h e o p e r a t i o n of Income Tax a n d ' a - g o o d - d e a l i s - b e i n g done i n t h i s . direction. But t h e , t r o u b l e goes much deeper t h a n t h a t raid the g r i e v a n c e s must b e removed i f continuous support i s -tolfre given t o t h e war e f f o r t . / / - "Any system must b e simple i n i t s o p e r a t i o n and. must b e r e l a t e d t o c u r r e n t e a r n i n g s * J. .-' .' , .--. . : : : E.B. 13t-h February? 1942 H.Q.4W-85 B.Lo s