§ The amount of any reduction in or deduction from the salary (including fees) or wages of any officer or servant of a local authority made whether before or after the passing of this Act, and whether voluntarily or otherwise, with a view to economy in consequence of the financial situation shall not, for the purposes of Income Tax, be deemed to form part of the salary (including fees) or wages of such officer or servant or be assessable for the purposes of the payment of Income Tax.
§ For the purposes of this Section the expression "Income Tax" includes Surtax and the expression "local authority" includes a local authority as defined in Section three of the Local Government and other Officers' Superannuation Act, 1922.—[Sir H. Jackson.]
§ Brought in, and read the First time.
§ Sir HENRY JACKSON
I beg to move, "That the Clause be read a Second time."
This arises out of the national crisis last year. May I read a relevant passage from a circular issued to local authorities in September last by the Ministry of Health:Reductions are being made in the emoluments of classes of local officers and in the remuneration of doctors and chemists under the National Health Insurance Scheme. The conditions of local government service and the range? of salary vary so materially that His Majesty's Government do not think it practicable, even if it were desirable, for them to impose any hard and fast rule on local authorities in the matter, but they are confident that officers in the local government services not affected by the reductions in emoluments above referred to will be prepared to make their contribution in the present emergency and they think each local authority should discuss the situation with their officers with the object of ensuring that all may have an opportunity of sharing equitably in the sacrifices that are demanded in the national need.Following the receipt of that circular, all local authorities, great and small, had interviews with their officers, and it was made quite plain that there must be some reductions in salaries. Questions have now arisen for the purpose of Income Tax in regard to this deduction. I am advised that the Inland Revenue have now decided that Income Tax shall be paid on the whole salary before the deduction was made in those cases where officers had collectively agreed to receive 662 temporary reductions during the period of the economic crisis. In a word, local government officers, in spite of their having responded to the circular of the Minister and having had interviews with the employing authorities, are faced with the problem of paying full Income Tax on their gross salary before these deductions were taken off. I understand that the basis of the Inland Revenue's claim is that these deductions are in fact gifts by the local government officers to the employing authority and, therefore, to the ratepayers in the district, and that the general procedure regarding gifts should be followed. I think it is straining the conception of a gift very materially if local government officers, in many cases men of very small incomes because of their loyal response to the appeal made to them should not only have to suffer a cut in salary, which is grievous enough, but at the same time should be asked to pay full Income Tax. It seems to me, therefore, that the equity of the claim is overwhelming.
There is a further point. In the case of local authorities which possess trading undertakings, if this rule is still maintained we shall have the startling fact that the Inland Revenue will be receiving Income Tax twice over. They will be receiving it under Schedule E from the unfortunate officer, and they will be receiving it under Schedule D, because the revenue from the undertaking will be increased by the amount that the officer has given up. I am speaking on behalf of the National Association of Local Government Officers and I have authority to say that the Clause receives the support of the Association of Municipal Corporations, of the County Councils Association, of the British Medical Association and of the Rural District Councils Association. In a word, I think I may claim that I am speaking for a united local government, not only for its officers but for the great employing authorities.
§ Major HILLS
I support this Clause. I know very well the case that the Inland Revenue makes on these occasions. They say the Income Tax payer suffers when he is subject to a reduction in his salary but, when he gets an increase, he is assessed on the smaller amount and the Revenue loses. But that does not apply in all cases, because some men may have left the public service before any restora- 663 tion of their salaries takes place. It is, at any rate, an immediate and a very strongly felt injustice. It is felt that, if a man has given up a part of his remuneration, he has done quite enough to help the country out of its present economic difficulty and it is not fair that he should suffer a second disability by paying tax on money which he never received. I believe there is a further injustice in the case of local authorities. If a man is in private employment and has a reduction of salary, I believe he can, by resigning the employment and accepting a new engagement at a lower rate of remuneration, escape this special charge. The official of the public authority is not able to go through that procedure. He has to submit perhaps to a lower salary and cannot obtain a new engagement, and therefore he suffers a special disability which does not affect men and women in private employment. I do not know whether the Financial Secretary to the Treasury can do anything in the matter, but it is a case of very real injustice which hits a class of people who least deserve to be hit, and, if possible, I hope that some remedy will be adopted.
§ Lieut.-Colonel ACLAND-TROYTE
I support the very strong case which has been put forward by my hon. and my right hon. Friends who have proved the case up to the hilt. I have really risen in order to inform the Financial Secretary to the Treasury that this matter came before the County Councils Association yesterday and that they unanimously decided to support the Clause.
§ Major ELLIOT
This is a case which has certainly attracted a considerable amount of attention, especially among local government officers. In the first place, it seems that a hardship exists. A man makes a gift of part of his salary to his employing authority, and subsequently finds that the contribution being a gift, and therefore within his power to give or to withhold, his salary remains the same and the Inland Revenue authorities inevitably assess him upon that salary. He says, "Here is a great injustice, and the greatest injustice of all is that the Inland Revenue is getting this money twice over. First of all, it taxes me, and then it taxes my employer." That is not so. A gift is a gift, and a 664 gift given for example to a gas undertaking of a local authority retains its character as a gift. Whether an employé has made, directly or indirectly, a voluntary refund or gift of part of his salary that sum retains its character in the hands of the recipient, and being a gift or a voluntary payment it will be excluded from the computation of the profits of the undertaking. In other words, the full salary will be admissible as working expenses, and there will be no double charge for taxation. A small injustice will be removed by the proposal of the Mover of the Clause, but what about the greater injustice? [Interruption.] What is the reason for officers of the local authority desiring that these sums should be regarded as gifts and not as cuts? It is the very simple reason that if they are regarded as gifts, their salaries have not been touched, and therefore their superannuation is calculated on a higher scale.
§ Lieut.-Colonel ACLAND - TROYTE
My right hon. and gallant Friend has apparently forgotten a Bill which was introduced yesterday.
§ Major ELLIOT
Not merely was a Bill introduced yesterday, but a Measure received the Royal Assent on the 13th of May.
§ Major ELLIOT
There may be other Bills, but I am talking of a Bill which has already received the Royal Assent. My hon. and gallant Friend the Member for Tiverton (Lieut.-Colonel Acland-Troyte) seems to indicate that I was speaking in ignorance of the subject and did not know recent legislation on the point. I am dealing with the question of gifts and the complaint of the donors of gifts that they are taxed twice. In fact, I have dealt with that point, and I think I have made it clear that that sort of thing does not take place. Secondly, I am dealing with the question as to why a servant of a local authority should desire to have a cut registered as a gift and not as a cut. In general, it is because a donation registered as a gift and not as a cut leaves one's salary at the higher scale, and therefore one is enabled to continue to be rated at the higher scale for the purposes of superannuation. Obviously, that is a great inducement. The citizen 665 cannot have it both ways. If he is to have the advantage of the superannuation, he must be prepared for the time being at any rate to put up with the inconvenience of the higher assessment. I have been able to give my hon. and gallant Friend the Member for Tiverton the example of a Bill obtaining the Royal Assent as a result of which the citizen is enabled to reckon his salary at the higher scale for the purposes of superannuation and at the lower scale for the purposes of Income Tax. How is that brought about? It is brought about by the cut being definitely reckoned as a cut, and by the local authority promoting legislation to make that cut inoperative for pension purposes. It is a very intricate matter, and I am anxious to carry with me my hon. and gallant Friend the Member for Tiverton, who is a member of a local authority and has a personal knowledge which, I frankly admit, I do not possess. Does he quarrel with me in any of the stages I have so far reached?
§ Sir H. JACKSON
If a Local Government officer has had a cut, will his superannuation be continued on the higher scale provided he pays his contributions on the higher scale? Do I understand my right hon. and gallant Friend to say that that is so?
§ Major ELLIOT
Obviously, that is a matter for the local authority. The fixing of superannuation allowances is clearly a matter for the local authority. If, however, the officer's salary is cut, the Inland Revenue will assess him upon the cut salary and not upon the higher salary. [Interruption.] The point brought forward by my right hon. and gallant Friend the Member for Ripon (Major Hills) was a general point which we are all accustomed of the man whose income has fallen and who is assessed on the higher salary of the previous year. That must be so in regard to every class of Income Taxpayer in these years of falling salaries and falling trade. I am now dealing, not with the general case, which, it semed to me, was being argued by my right hon. and gallant Friend the Member for Ripon, of the person who has had a higher Income Tax while in receipt of a lower salary. That has been common to all citizens in recent years. I was arguing upon the special case of the local government or other officer who had made a 666 gift of a part of his salary to his local authority, and finds, in spite of that, he is being assessed by the Income Tax authorities, not for one year, but for many years, on his salary as if he had not made the gift to the local authority. If his salary is cut, then he will not pay except on the cut salary. If then he is to protect his superannuation, he can only do that by legislation promoted by the local authority.
It may be said that is a heavy burden to lay upon the local authority. I do not think we can get away from that. The fact is that some local authorities have dealt with it in that way by promoting legislation. There was the Superannuation (Temporary Provisions) Bill promoted by the London County Council which applies also to the Metropolitan borough councils. The Minister of Health has stated that in general he raises no objection in the special circumstances to the principle of the proposal that existing superannuation rights should not be prejudiced by arrangements due to the crisis of last autumn. The Minister of Health indicated he could not contemplate any Government legislation on the subject this year, but that is Ministry of Health legislation and has to deal with local authorities. What I am arguing is whether the Inland Revenue comes into that at all. I am pointing out that the Inland Revenue is not concerned in this matter.
I hope that that clears up the position. Let me recapitulate it. If it is a cut, then you are assessed on the cut salary. If it is a gift, you are assessed upon the higher salary. If it is a cut, your superannuation is prejudiced, but that prejudice may be put right by legislation introduced, not by the Exchequer, but by local authorities under the aegis of the Ministry of Health. That being so, I hope my hon. Friend will not find it necessary to press the Clause.
§ Motion and Clause, by leave, withdrawn.