HC Deb 03 July 1950 vol 477 cc121-48

(1) Members of the armed forces of the Crown who are serving on the establishment any of the colonial forces or of the Gurkha Brigade shall be deemed for the purposes of this section, to be member of the colonial force or of the Gurkha Brigade as the case may be.

(2) Any emoluments payable out of the public revenue to members of the colonial force or of the Gurkha Brigade shall not be liable to income tax solely by reason of the fact that they are paid from the public revenue.—[Brigadier Priot—Palmer.]

Brought up, and read the First time.

Brigadier Prior-Palmer (Worthing)

I beg to move, "That the Clause be read a Second time."

In moving this new Clause, I seek to deal with—or perhaps "iron out" is the correct word, having regard to the last Debate—an anomaly which is causing very great hardship to members of the Colonial Forces, both native and British. There are three categories affected by the Clause. First, there is the British officer who is seconded to colonial troops; secondly, there is the colonies Briton who has lived in the Colonies for a large number of years, and thirdly three is the native who, by virtue of the fact that he has risen in rank, surprisingly comes within the Income Tax range and is also being taxed at British rates. As an example I refer to a warrant officer, a native of the country, in the King's African Rifles.

The position, briefly, is that before the war these troops were paid out of colonial resources. During the war, owing to the great expansion of the Forces, that commitment was taken over by His Majesty's Government and practically the whole of the Colonial Forces were paid out of home resources. Although the Colonies made as great a contribution as they could, the fact that the troops were paid out of home resources automatically brought them within the range of British Income Tax.

That was immediately realised by the then Chancellor of the Exchequer. It was appreciated that it created hardship and anomalies, and as a result, by an Army Council Instruction numered 497, issued in 1941, a list of extra-statutory war-time concessions was laid down wherein the charge to tax in respect of Service pay was abated so as not to exceed the rates which would be charged by reference to the appropriate Colonial Taxation Code. That was reported to the House, printed by order of the Chancellor of the Exchequer and remained in force until 1st April, 1947.

On that date, incidentally, or just afterwards, I was in East Africa and I saw the War Office letter which was circulated at that time to all colonial commands stating that from 1st April, 1947, this list of extra-statutory concessions ceased and that everybody would come under United Kingdom rates of Income Tax on a P.A.Y.E. basis. As may well be imagined, that caused a considerable amount of perturbation among those concerned, many of whom had lived in the Colonies all their lives. Of course, it included those natives who had risen to a rank which brought them into the Income Tax group. I must emphasise that it affects very much the Gurkha Brigade as well as other Colonial Forces.

7.30 p.m.

The effect of that letter was very serious on the recruiting of officers and other ranks to the Colonial Forces. Officers in those Forces are taken on for six-monthly periods, and a large number of officers failed to take on in consequence of that letter. I know personally of the case of one officer who had resided in East Africa since 1897 who fell to be taxed under the United Kingdom Income Tax, and of another who had been there since 1921.

I wish to impress on the Government the reason I suggest that this Clause must be accepted. It is difficult for us who are interested in Defence matters to be able to put over our case to the Chancellor of the Exchequer and the Treasury who are not in day-to-day contact with the problems of the defence of this Empire of ours and its extensive communications. I wish the Minister of Defence were here on that Government Front Bench to support me, as I am sure he would, in the case which I am putting forward. It is vitally important that we build up our Forces—in Africa, for example—to make up for the great loss which we have suffered in the loss of the Indian Army. With our commitments extended as they are today to the limit, this is one way in which we can help to relieve the position, particularly in South-East Asia and in the Middle East. Therefore, I say that, for this reason if for no other, it is very important that this anomaly and this great hardship should be removed at the earliest possible moment.

Not only do these people who fall under the United Kingdom rates of Income Tax on their pay not get the benefits of that tax in this country, but this is, surely, a glaring example of taxation without representation, because the large proportion of these people have no vote in this country at all. The case is hard enough for the British officer who is seconded, but it is not him so much: it is, as I have stated already, the people living in the Colonies who do not benefit and who do not have the vote in this country.

Alongside that are the facts that local salaries are increased by cost of living bonuses; that the colonial civil servant who goes out from this country to take a post in the Colonies alongside his brother who happens to be in uniform is taxed on the colonial rates of Income Tax; and that the native himself, who has probably never been in England in his life, falls to be taxed under this.

I want to emphasise my point by reading a very short extract from the Second Report of the Select Committee on Estimates. It is a reply given to my hon. Friend the Member for Blackpool, North (Mr. Low) who asked a question on this particular subject. The reply was as follows: If any means can be devised, consonant with Treasury practice and the like, for exempting the whole of the African Forces from United Kingdom taxes and leaving them liable only for colonial taxes, nobody would he better pleased than the Colonial Office, but that is not possible as things are today. My final word is this. This Clause makes it possible; and I trust that, in the interests of justice and the interests of dire military necessity, the Chancellor will see his way to accept the Clause. It is a matter of very great urgency. I trust we shall not have the reply that it will be considered for the next Budget, because that is too far away. Something administrative must be done at once if we are not to lose a very large number of officers and other ranks.

Mr. A. R. W. Low (Blackpool, North)

I beg to second the Motion.

I hope that the Government will see their way to meet us on this new Clause. Here really is an anomaly which has been created by the change in procedure for paying these troops. The Colonial Forces, which were before the war paid by the Colonial Governments of the territories from which they were drawn, are now paid through the War Office Vote, and it is, as I understand it, only because they are so paid that people who receive that pay, as they are paid out of the public revenues of the United Kingdom, have to pay United Kingdom tax. It has really nothing to do with those officers and men that this change has come about. The change has come about, as I understand it, for administrative reasons, but also, and perhaps quite substantially, because the Colonial Governments are not able to afford the increased sums that are necessary to keep up the increased Forces which are also necessary, or which can be found in their own particular territories.

It would be an awful confession of failure if the Treasury could not find some way out of the impasse into which that change of procedure has driven them. The quotation which was given to the House by my hon. and gallant Friend the Member for Worthing (Brigadier Prior-Palmer) was of a statement by no less a person than the Permanent Under-Secretary of State to the Colonial Office, Sir Thomas Lloyd, who showed in his evidence before the Select Committee on that occasion how much importance he and the Colonial Office attached to these Colonial Forces.

I and my hon. and gallant Friend are aware that there are exceptions to the rule at present. For example, at the present time the Malay Regiment is not paid out of United Kingdom revenues, and therefore the officers in the Malay Regiment, so long as they have been seconded to the Malay Regiment and not just posted from the British Forces, are not subject to United Kingdom Income Tax. However, serving alongside the Malay Regiment in exactly the same place are officers of the Gurkha Brigade whose pay is provided out of public revenues here, and who therefore are liable to United Kingdom Income Tax. That is a glaring example of where the present anomaly leads us, and I think that all hon. Members on both sides of the House can understand what it is we are trying to do—and why it is that we are trying to do it—by this new Clause.

Perhaps I may make a reference to what happened before the war in the case of the Indian Army. A large number of British officers and men serving in the Indian Army were paid out of Indian revenues, as, incidentally, were all the British Forces serving in India. Because of that they were not liable to United Kingdom Income Tax, but they were liable only to Indian Income Tax. So with the Colonial Forces before the war. Not only were they not liable to United Kingdom Income Tax, but they were also paid at rates different from and, I believe—though it is difficult to make a comparison—on the whole better than the rates of pay given to British officers and men in so far as they applied to them, in the Forces at that time.

It was the policy then, and I believe it should be the policy now, to encourage good men to serve with those Forces. It is vital, if we are to make use of the tremendous sources of manpower that are available to us in Africa and in other parts of the Colonial Empire, that we should provide good officers and N.C.Os. If we are to do that, we have to see that they are paid fairly. Before the war it was decided—and, in my view, decided quite correctly—that we should pay those men extra in order to induce them to leave their homes and go overseas, and stay there, certainly for the better part of their lives and perhaps for nearly all their lives. That decision is still taken by private firms who send their men overseas today. No private firm would dream of sending a man to Malaya unless it gave him extra pay above what it would give him for doing a similar job in this country. It is necessary to do the same for these men if we are to encourage the right type of man to go overseas and help us in building up the Colonial Forces and the Gurkha Brigade.

A question which must be in the minds of some hon. Members is this: Why do this for British officers serving with the Colonial Forces and yet do nothing for British officers and men serving in the British Forces in exactly the same place? I, as did all my hon. Friends, asked myself that question, but it seemed to me to be a very wide question, and one extremely difficult to deal with. In this new Clause we have tried to deal with the narrow question affecting the Colonial Forces and the Gurkha Brigade themselves, and I hope that we shall not be told by the Government that nothing can be done for them because nothing can be done for the others. If it is right, as I believe it is, to do something for the British officers and men serving in the Colonial Forces and the Gurkha Brigade, then it is right to do it even though it may be difficult to do something about the others—although I believe that something ought to be done for the others, too.

I hope that what we have said, and what will be said by, as I hope, hon. Members on both sides of the House, will persuade the Government to do something about this, and thus give a fillip in the selection and recruitment of the right people for our Colonial Forces and the Gurkha Brigade. Perhaps it is as well that we should be discussing this now rather than earlier during the Committee stage, when we had not got the events in Korea to drive home to our minds the importance of building up good Colonial Forces.

Mr. Speaker

Before the general Debate, perhaps I might remind hon. Members that this new Clause refers only to Members of the armed forces of the Crown who are serving on the establishment of any of the colonial forces or the Gurkha Brigade

Mr. George Wigg (Dudley)

I wish to support the principle on which this new Clause is based. In my maiden speech I made a plea for the establishment of the Colonial Forces and the retention of the experience which had been gained during the war. I had in mind, particularly, the West African Forces, and I was most anxious that the benefit of their experience should not be lost and that we should lay down the foundation of what I believe would be, not only a very valuable addition to the strength of the Commonwealth, but also a contribution to the well-being of the Colonies themselves. I am, therefore, following on that speech logically in supporting this new Clause.

I was particularly glad that the hon. Member for Blackpool, North (Mr. Low), noted the importance of recruiting the best type of warrant-officer into the Colonial Forces. There is no doubt whatever that we shall not get good men if they are treated in a mean sort of way. I am sure that the hon. Gentleman is right when he says that before the war it was difficult to make an accurate comparison, when those men who were seconded to the Colonial Forces—which was then the procedure—tended to be much better off than if they had remained an Imperial charge. It is true that through a series of administrative accidents—the consequence of which I am afraid, could not be completely foreseen—these men are in a much worse position than men who did not take that step.

I think the hon. Gentleman is treading on rather dangerous ground when he makes a comparison between men seconded to the Colonial Forces and men who remain on British rates of pay and happen to be serving in the same country. I do not want to contravene the rules of order, but I think his mistake arose because he tended rather to overstate his case on a previous occasion when we were discussing a similar matter. He overlooked the fact that before the war colonial allowances were taxable whereas today the comparable emoluments are not taxable. Therefore, the officer or N.C.O. serving in a Colony on British rates of pay is not in quite the adverse position that the hon. Gentleman made out.

Mr. Low

I hope the hon. Gentleman will be more accurate. If he reads my speech he will find that I did say that there was a difference.

Mr. Speaker

I would remind the House that Colonial allowances involve a charge, and discussion of them in this Debate is therefore out of order.

7.45 p.m.

Mr. Wigg

I was only anxious to reinforce the hon. Gentleman's argument that we should not, as it were, be put off because of a comparison between two officers, one who happened to be serving with a British regiment in a Colony, and another, of perhaps the same regiment, who had been seconded to the Colonial Forces. They are, it seems to me, different situations. The first officer would not be in such a bad position as I thought the hon. Gentleman made out. If he did not do so, I gladly withdraw my remark.

I think that the substance of this new Clause is sound, although I am not very happy about some of its wording. I am not very happy, for instance, about the phrase "serving on the establishment," because I can imagine this kind of situation arising. An officer might be serving with, say, the West Africa Frontier Force and be held to be serving in the Colonies, and if this concession were made he would then be exempted from tax. If the same officer were then asked to take up a staff appointment in, say, General Headquarters, West Africa Forces, he could perhaps be held to be no longer serving on the establishment of the Colonial Forces. It seems to me that we should then tend to set up a barrier which would discourage good regimental officers from taking staff appointments in the headquarters of the Colony in which they were serving. Therefore, whilst backing the principle of the new Clause wholeheartedly, I hope that the Minister will have a look at its wording, because in putting something right we ought to put it right permanently, at any rate as far as military events will allow.

Colonel Gomme-Duncan

I am sure the House listened to the speech of the hon. Member for Dudley (Mr. Wigg) with great appreciation, and we are glad to find him supporting the principle underlying this new Clause. I shall confine my remarks to the British officers of the Gurkha Brigade. These officers are labouring under a sense of grievance. There is no question about that, and I think they are right. It is possible that some degree of exaggeration my have crept in, and exaggeration always spoils a good case; but taken broadly, there is no doubt that the British officers now serving on the establishment of the Gurkha Brigade, who were serving with Gurkha troops before the Indian Army was done away with, are financially speaking definitely worse off than they were at that time. I am sure that is not the desire of this country or of the Government, yet I believe it to be the fact.

It is vitally important to remember that today Gurkha troops are among the most important we have in the British Empire. They may be small in number, but their efficiency and their ability for certain types of fighting in certain parts of the world are unrivalled. We must realise that the British officer serving in the Gurkhas is fixed for life in some part of the world, very often in a most unhealthy climate, and he has no option but to go on leave now and again. Also he has no option but to send his children home to be educated, if they happen to be with him, and that in it self is a very great expense. The advantage of the additional pay he would get when he was a member of the Indian Army, plus the fact that he only paid Indian Income Tax—except for any other income he might have had which originated in the United Kingdom, although few had very much of that—is now gone. Yet this officer is expected to be as cheerful and as efficient and somehow to make do on much reduced emoluments in spite of the increased cost of living.

These are facts which, I think, ought at least to suggest to the Government that behind this new Clause—whatever the actual wording, which may possibly be disputed—there lies a real grievance which could be put right, first, in the interests of justice and fair play for the men concerned, and, secondly, in the interests of defence which every day is becoming more important for this country.

Mr. Bing (Hornchurch)

I want to say a word or two in support of the proposal made by the hon. and gallant Member for Worthing (Brigadier Prior-Palmer), I particularly appreciate his suggestion that if we are faced with a situation which may lead to retrospective legislation, we can cure it by dealing with the matter by administrative action. I feel that we should not approach the question in the way suggested by the hon. and gallant Member for Perth and East Perthshire (Colonel Gomme-Duncan). This is a question of justice for all the people serving in these Forces, irrespective of whether they are African, British, Indian, etc. If it is an injustice, then it is an injustice to all.

Colonel Gomme-Duncan

I mentioned this type of officer because I know something about him, and I have no experience of Colonial Forces apart from that.

Mr. Bing

I will not labour the point. There is the technical difficulty of dealing with this matter. May I suggest to the Chancellor of the Exchequer that there does not seem to be any reason why we should treat our own Colonial Forces any worse than we treat the officers of the Polish Resettlement Corps who have not seen fit so far to enter into any of the arrangements made for their rehabilitation and training. Some two or even three years ago, I asked the present Minister of Town and Country Planning a question on this subject. He said that because they were paid at a rather lower rate than the British soldier, we did not charge them any Income Tax.

Surely there is the same position with regard to the Colonial Forces; and why should not they have the same advantages as we are giving to the Polish Resettlement Corps? If there are technical difficulties which make it necessary to charge Income Tax on everyone who is paid out of Imperial funds, then out of what funds are the Polish Resettlement Corps paid that Income Tax does not attach to them? I hope that the House will join in pressing my right hon. Friend for some concession on this matter. I agree with my hon. Friend the Member for Dudley (Mr. Wigg) that in the phrasing of the Clause there may be some difficulty, but do not let that deter us from taking this opportunity of putting right an injustice.

Mr. Gammans (Hornsey)

We are very grateful for the support which we have had from the two hon. Gentlemen opposite, from which we may adduce that they have either persuaded the.Chancellor of the Exchequer to agree to this very reasonable request or, alternatively, that we may have the pleasure of their presence in the Lobby with us in a few moments. The Chancellor has an opportunity of remedying what I think is an indefensible anomaly, namely, that the liability to pay Income Tax should not depend on a man's domicile or upon the job he is doing but on the fortuitous circumstances of who happens to pay his salary.

The hon. Member for Blackpool, North (Mr. Low) pointed out that at this very moment in the Malayan jungle we have officers of the Malay Regiment and officers of the Gurkha Brigade fighting side by side; and the officer of the Gurkha Brigade has the miserable experience of receiving his Income Tax demand from the Chancellor of the Exchequer while the water drips down his neck, whereas the other officer merely pays the Malayan Income Tax at a much lower rate. For years I was in the Colonial Service and I never paid a cent of British Income Tax, whereas the British District Commissioner in Singapore who happened to be paid by the Treasury had to pay Income Tax all that time.

This new Clause is a very narrow one and deals merely with officers specified in it, and we hope that we have convinced the Chancellor of the Exchequer of the justice of our case. I will put forward three arguments. The first is that, on the whole, the officer who is seconded to the Colonial Forces or the Gurkhas has to maintain two homes, one here and the other probably, or almost certainly, somewhere in the tropics. He has to send his children home to be educated from the age of six or seven and the odds are that his wife has to go home with the children.

The second reason, which I do not think has been mentioned this evening, is that the officer not only has to pay British Income Tax but has to pay the indirect taxes of the country in which he is living. On the whole, in the Colonial Empire the percentage raised by indirect taxation is higher than it is in this country. I admit that the Chancellor of the Exchequer is raising an increased percentage by indirect taxation here; but it is surely quite wrong that an officer who is paid out of the United Kingdom funds has to pay high indirect taxation on the spot and very high direct taxation merely because he is paid from the United Kingdom Treasury.

The third reason is the one given by my hon. Friends, and it is that we have to make up our minds now whether we want to encourage the best type of young officer to go into this service. If we do, then we must not penalise him when he goes. I hope that for these reasons, the Government will be prepared to grant this concession, which cannot cost the Treasury very much.

The Minister of State for Economic Affairs (Mr. Gaitskell)

The problem which has been raised by hon. Members in connection with this new Clause really springs from an Income Tax principle which is well-known and has been established for a very long time, namely, that all servants of the Crown who are paid out of moneys from the Exchequer should be liable to United Kingdom Income Tax under Schedule E. That was enshrined in the 1918 Income Tax Act, and I think we should be careful before we throw away that principle.

I am not saying that its application in all instances has not given rise to difficulties, but I shall deal with those in a moment. We should remember that it is a principle laid down which has been accepted by every Government since, and we must be careful before we make any major departure from it. The new Clause proposes to exempt from this principle and, therefore, from the necessity of paying United Kingdom Income Tax, members of the Colonial Forces or of the Ghurka Brigade and includes in their numbers members of the Armed Forces of the Crown who are serving on their establishment. I think that sums up the new Clause.

The first thing we have to do is to see what would happen if the new Clause were passed in this form. Although I appreciate that hon. Members opposite may from time to time be a little irritated when the Government produce anomalies which result from proposals they make, a moment's consideration will show that we have to be careful if we make a change not to make the position worse by creating additional anomalies. We want to try to find some solution which does not do that.

I submit that the new Clause would in fact create additional anomalies for these reasons: In the first place, it draws a line between the Armed Forces of the Crown and civilian employees. Clearly, so far as the application of this Income Tax principle is concerned, civilian employees are in just the same situation as the local officers of the Colonial Forces taken over by the War Office. I do not think that we can deal with the problem on the basis of the military employees only. One has only to think of the employees of some of the Royal dockyards in the Colonial Empire to see that they would clearly be in an adverse position compared with those covered by this Clause.

8.0 p.m.

In the second place, I should have thought it would give rise to a good deal of feeling on the part of British officers serving with United Kingdom units under precisely the same conditions as other officers seconded to the Colonial Forces. The latter, of course, would get the benefit of not having to pay United Kingdom tax, whereas their fellow officers who happen to be with a United Kingdom unit in the Malayan jungle doing the same work would be still liable to United Kingdom Income Tax. I appreciate that the hon. Member for Blackpool, North (Mr. Low), asked me not to use this argument because he would like to see them helped as well, but we must have regard to the consequences. It is no good making a change of this kind if it leads to a great deal of grievance and unsettlement among other people in the Armed Forces.

Mr. Mott-Radclyffe (Windsor)

While it is true that British officers with British units serving in Malaya are fighting under similar conditions to British officers seconded to the Ghurkas, their conditions of service are slightly different.

Mr. Gaitskell

They may be slightly different, but a change of this kind would lead to the comparison being exceptionally unfavourable to British officers still with United Kingdom units. The circumstances would differ, but they are both entitled to the same local colonial allowances, and although there may be some unevenness, I do not think the position would be improved by the Clause. This does not mean that we are satisfied with the present situation. There are undoubtedly some anomalies, but it does not seem to me that we have reached the heart of the problem by drawing the particular line that this Clause does between Service men and civilians, on the one side, and Service men serving in the Colonies and those serving with United Kingdom troops, on the other.

In this matter of taxation at United Kingdom rates, the real issue is not so much whether or not the individual is serving in this way or that, but whether or not the pay he receives can be described as United Kingdom pay or local pay. That is a real principle of distinction we can apply. Perhaps I might put it like this, in what I describe as a new principle. Any servants of the Crown, whether service or civilian who are paid at United Kingdom rates, which are fixed as the proper remuneration for people who have to pay United Kingdom rates of Income Tax, ought to bear United Kingdom tax.

I know that this will not meet some objections of Members opposite, who will claim that almost anyone working in the Colonies for rite Government should have the same concession. We cannot, in my view, make a concession of that kind. We draw this distinction between the principle on which their pay is based. On the other hand, those who are paid at local rates of pay, fixed according to the wage rates of the overseas territory concerned, ought not to pay, in respect of their British tax liability, at more than they would pay at the local rate. That is a principle we ought to apply, which seems to me to be a fair principle.

The problem only arises in connection with the latter class, that is to say, those whose rates of pay have been determined by local conditions. If that be accepted, the question is how we can put this into operation. There is no doubt that there are some cases where the present legal liability conflicts with the principle I have explained. There are, I think, three ways in which we can deal with the matter. In the first place, we can no doubt raise the rates of pay for the individuals affected above the local rate to take account of the fact that they are paying United Kingdom Income Tax. That would be a very difficult thing to do administratively. One can understand that it would lead to a lot of misunderstanding about these rates of pay being above those rates of pay of persons not liable to Income Tax. Secondly, there is the possibility of amending legislation. Here again, there are certainly difficulties. It is not going to be at all easy to find a simple way to deal with those persons whose pay is settled on a local basis. On the other hand, we have not by any means ruled out the possibility of legislation, and we shall continue to see whether that is necessary and possible.

The third method is administrative. To some extent, as a matter of fact, it is now in operation, that is to say, in a number of cases the employing Department have charged under P.A.Y.E. employees affected at the local rates of taxation and paid the Revenue authorities the extra amount to bring it up to United Kingdom Income Tax. The difference, of course, is charged on the Vote of the Department concerned. That has happened in a number of cases, and it offers a short-term method of dealing with the problem. I would propose to the House that, as far as the immediate situation is concerned, this is the best way to handle it. If the principle I have enunciated is accepted, then we would apply it at once everywhere. We would have each case examined and meet it on the basis I have indicated, namely, by the Department concerned charging only the local rate of income tax and making up the difference to the Revenue by taking an additional charge on their Vote.

Mr. Low

Does the right hon. Gentleman mean by "pay at the local rate" pay at the United Kingdom rate plus or minus a smaller or larger local allowance, or must it be overall pay at the local rate, rather than pay influenced by allowances.

Mr. Gaitskell

I think it is the latter. What I have in mind is not just the case of anyone who happens to be serving in the Colonies with a colonial allowance. Take the civilian case of the dockyard employee in Malta who is taxed at the United Kingdom rate, although his salary is fixed according to local conditions. Against that, the seconded officer would not be covered by this, because he is paid and continues to receive the pay of the ordinary British serving officer with the colonial allowances his colleague gets when he happens not to be seconded to the Colonial Forces.

Mr. Gammans

I am not sure that I understand the position. Let me take the analogy of the dockyard employee. Do I understand that if a man went from Portsmouth dockyards, where he was receiving £10 a week, to Malta, where he would receive £10, he would not come under this proposal, but that he would if he received only £8? Surely, the point is that he would not go to Malta if he received only £8.

Mr. Gaitskell

It is obviously extremely difficult to answer every individual case in advance. If a man goes to Malta and is simply seconded and special arrangement were made, I would not say he was in a position to claim special treatment. But if he happened to be paid on the Malta scale, but was nevertheless charged at United Kingdom tax rates, that is an anomaly which we are prepared to put right.

Mr. Gammans

But the man would not go abroad to a job unless he were getting at least the equal rate he was getting when at home. Take again the case of the dockyard worker. If he were getting £10 a week in Portsmouth he would not go to Malta for £8. Therefore, the right hon. Gentleman is not giving anything at all.

Mr. Gaitskell

I am not concerned with whether people go there for less or not. What I am saying is that in the case of the dockyard worker, if he is paid at local rates and charged tax under the United Kingdom law, certain anomalies exist, and we must deal with it on that basis. I cannot make a general adjustment by saying that anyone working in the Colonies should be entitled to this, that or the other. That is not a sensible method of procedure.

Brigadier Prior-Palmer

I quoted a list of extra-statutory war-time concessions, which in 1941 were given by the Chancellor of the Exchequer for this very reason. They went on until 1st April, 1947. If that were just to the end of the war and up to 1st April, 1947, why has it not continued, and why was the War Office circular letter ever issued? If it had not been issued this would never have happened.

Mr. Gaitskell

It was a wholly exceptional procedure adopted during the war because of the necessity for the War Office to take over these troops, and, therefore, for the time being they had to be charged on the local rate. They are the sort of people who would be touched by this proposal. Their rates of pay would be settled by local additions as they would have been before.

Mr. Low

As they would have been before?

Mr. Gaitskell

Yes, unless there has been a change in the meantime.

Mr. Mott-Radclyffe

Does the right hon. Gentleman really mean that in certain circumstances what are really called local overseas allowances, which are subject now to United Kingdom rates of tax, will in future be subject to rates of tax prevailing in the particular Colony?

Mr. Gaitskell

No, it is according to whether or not the salary or wage of the individual concerned is settled on a local basis, and, having regard to the local conditions instead of being settled in accordance with United Kingdom conditions.

Mr. Wigg

But has my right hon. Friend not overlooked the fact that the money of a Colonial officer even before the war was eventually recovered from the revenue of the Colony before he was seconded? The same thing happens now, only the War Office happens to be the collecting agency, whereas before the Colonial Office was. It all goes back to the fact that the money is borne on the revenue of the Colony concerned?

Mr. Gaitskell

I have already tried to explain that I cannot see there is any ground for distinction between the case of the officer seconded locally and the officer serving in the Colony in the Army. Both receive a rate of pay based on United Kingdom rates.

Mr. Wigg

Obviously I have not made myself clear. Take the case of officer A. In 1938 he was seconded to serve in the Gold Coast, and when he was seconded the Colonial Office got the money from the Gold Coast revenue and passed it across to him. When the same officer is now seconded, the War Office is the collecting agent. The present method may be just the same, but he is now taxed at United Kingdom rates, whereas he was not so taxed in 1938.

8.15 p.m.

Mr. Gaitskell

I am not sure that I follow my hon. Friend in this matter. We are not really concerned with what was the position in 1938. We are concerned with trying to clear up a difficult situation, which has arisen since 1947. We cannot spend the whole of the evening going into the history of this matter and trying to find a solution.

I should like to say a word about the Gurkhas, mentioned by the hon. and gallant Member for Perth and East Perthshire (Colonel Gomme-Duncan). As he must know, the Gurkha Brigade used to be employed, paid and taxed by India, before the transfer of power. A number of units were then transferred to the British Army and their members, in accordance with the general principle, were chargeable under Schedule E in Common with all ranks of the British Army. The British officers of the Brigade received their rates of pay and allowances, and so far as they are concerned I would claim that we cannot make a distinction between them and other officers in the British Army serving overseas.

On the other hand, the Gurkha officers and other ranks are paid at rates derived from India, where other Gurkha formations continue to serve with the Indian Army. To this is added a local addition. Therefore, there we had an anomaly. Officers and men, who have been previously paid at Indian rates of pay, are now liable to United Kingdom Income Tax, and in order to make that up local additions are now being paid, but I would not say that the local additions meet the situation.

There is one additional complication. There is an agreement between the Governments of India, Nepal and ourselves that parity must be maintained between the emoluments paid to the Gurkha service man no matter what Government he serves. We have to make some special ad hoc arrangement. What we propose to do is to re-examine the position immediately in the light of our agreement with India and the new principle I have tried to explain, and if any adjustment is found necessary we shall make it in the way I have explained by administrative action.

Colonel Gomme-Duncan

I am very grateful to the right hon. Gentleman so far and I hope it will be successful, but I should like to draw his attention to the fact that the British officer in the Gurkha Regiment is not on a parity so far as terms of service with British officers serving in other units are concerned. He is with the Gurkhas for life and the other fellow comes home. It makes an enormous difference.

Mr. Gaitskell

It is difficult to draw that particular line. It may be that each officer in each of these formations does not get exactly what he ought to in relation to every other one, but I do not think that that is sufficient grounds for making the tax distinction which it is suggested should be made. On the other hand, I have explained—and it is an illustration of the general principle that I have put forward—that the Gurkha officers and other ranks themselves have had their pay based on Indian rates and this adjustment is reasonable. We do not want to exaggerate the inequalities, but I have said sufficient to show that we are aware that anomalies exist.

It is also quite clear that this is an extremely difficult matter with many complexities and ramifications running throughout the whole civilian and military spheres. What we shall have to do, as I said earlier, is to examine all these various cases by one means or another, and particularly by the method of administrative action, and make appropriate adjustments. Incidentally, we shall have to take care about double taxation.

I am not saying that this administrative device is one which is an appropriate one to continue with indefinitely. Quite frankly, I do not think it is very satisfactory that a legal liability should be removed by the device of the employer. It is perfectly legal for a Government Department to pay an employee's Income Tax or part of the Income Tax and then refund the revenue out of its Vote, but it is rather clumsy and not a very satisfactory arrangement. If it were to be made permanent it is something which ought to be brought specifically to the knowledge of the House to secure their approval. It may be that amending legislation would be possible and be the satisfactory answer if we can find the right sort of formula.

I hope that in the circumstances the House will feel that so far as these taxation anomalies are concerned we have stated a principle which is a reasonable one. I am quite aware that this does not meet the point that some hon. Members have made, which is very big and wide, that, in fact, the pay to persons in the Colonial Forces is not adequate. That is what they are really saying. [HON. MEMBERS: "No."] So much the better, if that is not so, but some of the speeches certainly led me to suppose that that was in hon. Members' minds. This is a practical answer to a difficult problem, but it does not provide an altogether satisfactory solution, and in the circumstances I hope that the hon. and gallant Member will withdraw his proposal.

Captain Crookshank

It is for my hon. Friends, who are much more versed in this topic than I am, to express their views about the last sentence in the right hon. Gentleman's speech, but it seems to me that he is going about such reforms as he wants to undertake—I do not say whether I think they are right or wrong, because I have not studied them in so much detail—in a very strange way. He starts his speech by enunciating a new principle of taxation. Following from that, he proposes by administrative action to give effect to it. For the House of Commons to legislate about taxation in that way is extremely novel and extremely undesirable. Enunciating a principle does not get us anywhere. If we are to change the basis of taxation, surely this House is the only body which can do it, by some form of formal resolution, if not by a Clause in some Statute. It just cannot be done on the ipse dixit of a Minister—"We are changing the principle of taxation."

Mr. Gaitskell indicated dissent.

Captain Crookshank

That is what the right hon. Gentleman said.

Mr. Gaitskell

I was trying to meet the hon. and gallant Gentleman who moved the proposed new Clause and who particularly asked for the matter to be dealt with by administrative action. I said that we must have a principle upon which to base the administrative action.

Captain Crookshank

I should hardly think that my hon. and gallant Friend proposed only administrative action, since he moved the Second Reading of a new Clause, which is the statutory way of doing it. It seems wrong to say that we are to change the principle of taxation just because a Minister says so. Generally speaking, I am averse from making taxation changes by administrative action because that tends to lead to more and more anomalies. The right hon. Gentleman said that the position is very anomalous and he instanced the case of civilian employees in Colonial Territories. The proposed new Clause has nothing to do with civilian employees. We are talking only about a comparatively small number of persons, as Mr. Speaker said when he read out the title of the proposed new Clause, obviously intending the discussion to be on a very narrow basis.

Whether it would be a good idea to accept the Minister's proposal for doing it by administrative action I must leave to my hon. Friends, but I say that if there are to be changes of this kind, changes in a basic principle of taxation upon overseas allowances, sooner or later it must be done by legislation. It may be that the matter has been left so late this year that we cannot do it in time and cannot have a Clause in the Finance Bill. Sometimes a temporary advantage must be accepted, but not at the cost of regularising the matter in the long run.

I would add one sentence upon the case which the right hon. Gentleman was making as he sat down. He tried to make out what it seemed to me is quite incapable of being made out, that there was no difference between British officers serving in the Gurkha Brigade and British officers serving in the Army overseas. There can be no similarity because, ex hypothesi, unless I am wrong, the idea of the Gurkha Brigade was that it should always serve overseas. I do not think it was ever suggested that they should serve in Great Britain. On the other hand, British officers serving overseas do not have so much time in England as they used to have when there was a larger Army, but the time to serve in this country does come. The situation in those two cases is not a bit alike. It is not for me to say what action my hon. Friends should take, but whatever action they take I ask that in the end it should be regularised by legislation.

Mr. J. Enoch Powell (Wolverhampton, South-West)

It would be unreasonable not to recognise that in regard to Forces paid on Colonial scales the administrative device which has been put before the House by the Minister of State goes some distance to meet what hon. Members had in mind in putting the proposed new Clause in the Order Paper. On the other hand, his remarks seemed to miss the main point of the Clause. The right hon. Gentleman argued that to accept the principle of the Clause would create anomalies as between serving soldiers or officers and civilian employees, and as between officers seconded to the Colonial Forces or belonging to the Gurkha Brigade on the one hand and officers of the United Kingdom Forces on the other. That is true; but the fact that this Clause is, in a sense, special pleading is not an argument against it. We accept that it is special pleading, because we believe that there is a special case for officers and men of the Forces involved.

My hon. and gallant Friend the Member for Worthing (Brigadier Prior Palmer) drew attention to the future importance of the Colonial Forces, which is of quite a different order from what they possessed in the past. It is impossible to overestimate the potential value to Britain's future military position of the Colonial Forces. Whether they have that value or not and whether they can serve in future as a replacement of what we have lost in the Indian Army will depend almost entirely upon the calibre of the officer material attracted and maintained by those Forces.

The great strength of the Indian Army in the past was the strong and lasting attraction for the best of British manpower which it exercised. Unless the Colonial Forces and the Gurkha Brigade in the future can retain that attraction they can never fulfil their function. Tradition undoubtedly played a very great part in the past in attracting the right type of officer. There were the families to which Kipling referred, following one another out to India, generation after generation, "like dolphins following one another out to the open sea." The fact remains that there was a very real and very sensible financial attraction to Colonial and Indian soldiering. Unless that financial attraction is maintained in respect of the Gurkha Brigade and the Colonial Forces, we shall not be obtaining the manpower which we must have.

The present position is that, so far from the officer who accepts secondment to those forces, or who volunteers to join the Gurkha Brigade, being in an advantageous financial position, he is at a financial disadvantage. The effect of this is even more serious when we realise that in the case of the Colonial Forces a strong tradition has never been built up and in the case of the Gurkha Brigade it has been in part broken. It is incumbent upon us to take whatever measures may be necessary to retain the financial differential and the financial attraction of service in the Colonial Forces and in the Gurkha Brigade. I hope, therefore, that the Government will not dismiss the method proposed in this new Clause on the ground that it constitutes a kind of special pleading. It is a special pleading to which we ought to listen.

8.30 p.m.

Mr. Alport (Colchesters)

As I understand the practical effects of the principle enunciated by the right hon. Gentleman, it comes to this; that so far as an East African unit is concerned, for example, African warrant officers, noncommissioned officers and other ranks who are paid on colonial levels of pay would not in any circumstances be subject to Imperial Income Tax but the British officers and British N.C.O.s who derive their pay codes from this country would, in all circumstances, be subject to Imperial Income Tax. If that is so, it appears to me that the right hon. Gentleman has missed the fundamental point of this new Clause.

Before the war, it was the custom of British officers not merely to be seconded from the British Army but to enter into a contract with the Colonial Office and the colonial Governments concerned to serve in what were then regarded as their Forces. That had an important psychological effect. Instead of looking over their shoulders continually at the rate of promotion of colleagues in their own home regiments and at the increased opportunities of their comrades at home for training and staff employment and various other advancements in their profession, they regarded themselves as the servants of the Colony concerned, and they gave to those colonial regiments whole-time and whole—hearted service.

The result was that during the late war the existence of this small nucleus of men who had served as colonial soldiers, not merely as British officers and N.C.O.s seconded to colonial units but in high comradeship with African warrant officers, N.C.O.s and men, made it possible for the Colonial Forces to fulfil the expectations we had of them. The solution of this problem seems to me to be to institute a system whereby the officer is not seconded but is under contract to the Colonial Office or the colonial Government concerned, and that he should serve as a citizen of the Colony concerned, so to speak—that he should be subject to a contract which would give him a rate of pay of his own, and would also be subject to the Income Tax of the Colony in question. In that way men would be encouraged to prolong their service with colonial units, which is essential to ensure efficient officers and N.C.O.s for the Colonial Forces. I do not see why any administrative alteration or juggling is necessary. It could easily be based upon the contract entered into between the British officer or N.C.O. and the Colonial Office or the colonial Government concerned.

The next point which the right hon. Gentleman raised was the possibility of feeling arising between the officers in the colonial military services and officers serving next door to them and being paid the British rates of pay and being subject to British Income Tax. I served on Imperial rates of pay and subject to Imperial Income Tax side by side with officers in the same unit who were being paid colonial rates of pay and were subject to colonial rates of Income Tax. There was no sign of feeling whatever between the two categories of officers concerned. We felt that the additional experience and qualifications which the colonial officers could bring to a colonial unit fully justified any advantages which they might have in their rates of pay.

It seems to me to be wrong that the United Kingdom, merely because it is convenient to pay from United Kingdom funds the officers serving with the Colonial unit, should take from the Colonial Governments the advantage of Income Tax which should properly go to them. After all, by paying those serving with colonial units the United Kingdom Government are merely passing on the money paid to the United Kingdom Treasury by the Colonial Governments, which was the point made earlier by the hon. Member for Dudley (Mr. Wigg). At the present time the colonial Governments are paying, I believe, 125 per cent. of the contribution which they made before the war for the maintenance of military forces in the Colonies concerned. Why should the United Kingdom Government not only take that additional contribution but take the benefits of the Income Tax which before the war would have been paid to the Colonial Government?

I suggest, therefore, that not only does the principle of taxation enunciated by the right hon. Gentleman not apply in this particular case, but also the interests of the Colonies and of this country are bound up with the acceptance of this Clause, because without it I very much doubt whether we shall be able to revive in the Colonial Forces that spirit which, in 1939, stood us in such good stead.

General Sir George Jeffreys (Petersfield)

I fear that this is one of those cases in which the British officers and N.C.O.s. will be placed in a worse position than they were in before the war. In speaking of colonial service the right hon. Gentleman mentioned Malta and also the possible pay and conditions of a dockyard worker in Malta. The Clause put down by my right hon. Friends speaks of members of the Armed Forces, and I do not know what a dockyard worker has to do with the Armed Forces so far as membership is concerned.

Malta is a very different place as regards conditions from, shall we say, West Africa or East Africa, or Malaya, or various other Colonies; and they are difficult to compare. East and West African troops, who are perhaps the most numerous classes of colonial troops at the present time, were formerly paid by the Colonial Government. Officers were seconded for service with them, and were not liable to British Income Tax. It was not only because they were keen soldiers that a great many young officers went to East and West Africa. It was very often from motives of economy. They went because they found it hard to live in this country. In West Africa they received higher pay, they did not have to pay British Income Tax, and they found living cheap and expenses few, even though conditions and climate were less pleasant.

Now African troops are paid by the United Kingdom and the cost of living in the Colonies has increased enormously, even in West Africa. Although certain overseas allowances are issued, there is very little chance of economy for officers, and in addition they are liable to the United Kingdom Income Tax on their pay and their overseas allowances. What attraction will service in these Colonies offer to such officers in the future? How shall we get sufficient officers of the right type to go out when no attraction is given them?

Another point I consider important is that they do not get, so long as they are serving in the Colonies, any of the benefits which are supposed to accrue to a taxpayer in the United Kingdom. I hope that the right hon. Gentleman will think again and instead of taking two bites at the cherry he will swallow it in one bite and accept this new Clause. It would be reasonable, it would not cost very much money, and it would put officers and non-commissioned officers on the same footing as that they occupied before the war in Income Tax matters.

I should like to say a few words about the Gurkhas. Formerly they were a corps d'élite of the Indian Army. It was a splendid service, but it entailed long years of service in India with infrequent periods of home leave. Pay and allowances were the responsibility of the Government of India, as were the pay and allowances of officers of the British service in India before the war. Consequently they did not pay British Income Tax on their pay and allowances. It was a splendid service but, in much the same way as those in West Africa, they enjoyed no benefits, and they enjoy no benefits now from British taxation. They get none of the amenities or privileges which accrue to the British taxpayer in this country, and they get very infrequent periods of home leave. Their service in present conditions is still all overseas as it was before.

They are still splendid troops but they are no longer part of the Indian Army which in the past, with its British headquarters and its friendly influence close at hand, was of very great use to them. Now they are far out of sight. I hope that they are not out of mind of the War Office. They get as little leave as ever. They have no large and friendly headquarters close to them, and they have the privilege of paying these appalling and crushing taxes which afflict the people of this country but for which the people at home are supposed to get some privileges and benefits in return.

I hope that this distant detachment of the British Army, far from London and the eyes of the War Office, far from the amenities of home, and living in climates which are not always the sort of climates which right hon. and hon. Gentlemen would like to live in, will not be forgotten. Although they are paid by the United Kingdom, it would not be unreasonable for them to be placed upon the same terms as they had before the United Kingdom scuttled out of India and left them serving under very different conditions.

Brigadier Prior-Palmer

I beg to ask leave to withdraw the Motion, but I do it with great reluctance and a certain amount of trepidation. I do not believe that the Treasury realises, as the Minister of Defence realises, the vital importance and urgency of this matter. I have put Questions down over two years. It is wrong that the Minister should not have produced a new Clause himself to cover the remarks he made. However, we shall watch carefully the administrative action he takes.

Motion and Clause, by leave, withdrawn.