HC Deb 22 May 1950 vol 475 cc1789-802

10.18 p.m.

Sir John Mellor (Sutton Coldfield)

I beg to move, That an humble Address be presented to His Majesty, praying that the Regulations, dated 26th April, 1950, entitled the Fire Services (Ranks and Conditions of Service) (No. 2) Regulations, 1950 (S.I. 1950, No. 686), a copy of which was laid before this House on 27th April, be annulled. These Regulations deal with conditions in the Fire Services and, as hon. Members will have seen from the Explanatory Note, they are partly a measure of consolidation but they also contain amendments. I know that an Explanatory Note is not part of the Order and, as they are often inaccurate, we can only take the Explanatory Note as prima facie evidence of the contents of the Order, but I will read the material part of it: These Regulations consolidate with amendments the previously existing Fourth Schedule. The main amendments are made in "— and then a number of paragraphs are mentioned, including paragraph 28, which relates to compensatory grant. It is to paragraph 28 of these Regulations that I wish to invite the attention of the House.

First, I should like to make it abundantly clear that I am not offering any opinion, and that I hold no opinion, as to the adequacy or inadequacy of the scales of remuneration. I believe they were decided as a result of recommendations by the Industrial Court and, although it may be that other hon. Members will wish to discuss them, I propose to confine myself to paragraph 28, which is one of the paragraphs containing amending matter.

If hon. Members will examine the paragraph they will appreciate that it contains a really grotesque method of remuneration by means of compensatory grants. This paragraph applies permanently to chief officers and assistant chief officers and for a limited period to other ranks. It applies in so far as they are; entitled to receive supplementary allowances, that is to say, rent allowances and certain flat rate allowances. The way in which, I submit, paragraph 28 is really quite fantastic is that it says that where-a supplementary allowance has attracted Income Tax, then the Home Secretary requires by this paragraph the fire authority to make a compensatory grant equal to the Income Tax which has been paid; that compensatory grant again attracts further Income Tax; and that further Income Tax, under this paragraph, attracts a further compensatory grant; and so on ad infinitum.

Here one is presented with an infinite series in geometrical progression. I think this method must have been invented by the Home Secretary, because I can find it used in only one other case, and that is in regard to the police pay and allowances. The police, indeed, are now advertising for more members, and they are advertising that they will pay generous tax-free allowances. That was authorised by an Order of the Home Secretary against which we were unable to pray. But we are able to pray against these provisions.

Certainly the Home Secretary has succeeded in scoring off the Chancellor of the Exchequer, because the payments made by way of compensatory grant under these Regulations are, of course, grant-aided expenditure; and therefore, while the Chancellor of the Exchequer snatches away from the employees in the form of Income Tax a certain amount of money, it is reimbursed to those employees by the fire authorities out of moneys which are very largely grants-in-aid from the Exchequer. So the Chancellor of the Exchequer really gains nothing by levying that taxation.

I would contrast the policy of these Regulations with the general policy of the Government with regard to the taxation of allowances. In recent Finance Acts we have seen endeavours time and time again by the Chancellor of the Exchequer to prevent anyone from getting any allowance tax-free. In the Companies Act, 1948, Section 189, there is a prohibition of tax-free payments to directors, or of payments calculated by reference to their Income Tax; and we find now even payments in kind to employees being valued and charged to tax. So we get this curious position: the Home Secretary is engaged in various tax-dodging devices.

But it would be a grant advantage, not only to the Fire Service but to the whole community, if the right hon. Gentleman, instead of indulging in these tax-dodging devices, would use his influence with the Chancellor of the Exchequer to try to get him to give fairer treatment to those who receive allowances—to try to persuade him, instead of ruthlessly taxing allowances, to exempt all genuine allowances from tax, and confine his tax to the real profit element in emoluments. If he were to do that, it would be a great advantage to the community, and I hope the right hon. Gentleman will reconsider paragraph 28 of these Regulations, and see whether he cannot, by arrangement with the Chancellor of the Exchequer, come to a very much happier conclusion.

10.25 p.m.

Mr. Boyd-Carpenter (Kingston-upon-Thames)

I beg to second the Motion.

My hon. Friend has made abundantly clear to the House the extraordinary procedure which the Home Secretary has followed in the provisions which he has made for the remuneration of the Fire Service, and there are only two points which I think need adding to his admirably lucid speech. In the first place, I confess that the fact that this procedure differs widely from Government policy in other spheres does not necessarily in my mind condemn it; but it is perhaps noteworthy that the Home Secretary has followed a procedure totally different from that adopted by his colleagues in similar cases, and up to that point one can congratulate the Home Secretary; he cannot go very far wrong if he continues to follow that line.

It is, however, curious that while the Home Secretary is providing what amounts in substance—though the procedure is elaborate—to giving to the Fire Service tax-free allowances, his right hon. Friends in the Service Departments have quite recently followed the exactly converse process and rendered liable to tax those allowances which for many years were paid tax-free to members of the Armed Forces. There is a curious inconsistency that there should be right hon. Gentlemen at the heads of Service Departments—as the Under-Secretary Who is to reply knows perfectly well from his previous administrative incarnation—adopting one attitude towards this question and the Home Secretary then adopting another.

There is one other point which seems to me significant, and it is this. Here we have a right hon. Gentleman at the head of a great Department of State necessarily and vitally concerned to provide a proper system of remuneration for an important public service. What is the first thing that he does? The first thing he does is to provide that people taking part in that service shall be in part freed from the burden of taxation which the Government of which the right hon. Gentleman is a Member impose upon the community as a whole. Could we have a better illustration of the point to which this Government have carried the burden of taxation, when in the view of the Home Secretary it is impossible adequately to remunerate the Fire Service unless its members are partially freed from that burden of taxation? It would seem to me that by bringing forward this Order, whatever its particular merits may be, the right hon. Gentleman has demonstrated the bankruptcy of the general financial policy of His Majesty's Government.

10.29 p.m.

Mr. Reader Harris (Heston and Isleworth)

This Prayer is to annul the whole of these Regulations, but I should like to make it clear that it is no particular desire of hon. Members on this side of the House that the whole of the Regulations and the principles which they embody should be annulled. My hon. Friends have very rightly drawn attention to a particular aspect of these Regulations, which are clearly anomalous and complicated to work, to say the least of it. In some respects the Regulations are not doing what they were intended to do. They embody the decision and recommendation of a National Joint Council forwarded to the Home Secretary. The principle underlying that decision was that because of various anomalies, whereby some members of the Fire Service received the emolument of free quarters but others who were entitled to emoluments of free quarters could not have them provided because houses were not available, so that supplementary allowances had to be paid and the men had to find their own accommodation, that their pay and emoluments should be consolidated. That is what these Regulations do. They are designed to remove anomalies.

The point I am making, is that these Regulations do not remove certain anomalies as they are intended to do, or, if they do, they create a whole lot more. They create further anomalies in this way. The National Joint Council for local authorities' fire brigades, at the time they forwarded their decisions to the Home Secretary to be promulgated in Regulations, decided to recommend, rather by way of obiter dicta, that when fire authorities come to assess the rentals of premises which have hitherto been occupied free by fire officers and junior ranks, they should have regard to all the circumstances—such as the fact that duty—and they should be reasonably generous.

There is no guiding rule laid down, either in the Regulations or elsewhere, of what "reasonably generous" means. Some authorities charge something in the nature of a peppercorn rent, and others charge something near the economic rent. The fire authorities intended the Regulations to be generous, and the principle laid down was that nobody should be worse off. They recommended that there should be a "non-worsening" payment made in cases where an officer or man was liable to be worse off than before consolidation. It appears to be overlooked that the non-worsening payment is to be subject to Income Tax and that no provision is made for repayment of Income Tax charged on non-worsening payments similar to the provision made for repayment of Income Tax charged on compensatory grants for supplementary allowances. This will cause hardship in certain cases.

For example, there is the case of an officer living in a flat at Knightsbridge Fire Station. As it is a West End flat, the L.C.C. will assess the rent at £4 or £5 a week, which will involve a relatively high "non-worsening" payment and also a relatively high rate of Income Tax. It will make it impossible for the man to continue to live there. There is the further anomaly of the officers and /or men living in free quarters, not because they are required to live there because they are in charge of a local station or for any service reason, but because these quarters were available and the fire authorities have said, "You might as well go and live there as receive allowances." These men have to pay economic rents. There can be no question of the fire authorities being generous to them, because these quarters are let not on service but on ordinary tenancies and come under the Rent Restriction Acts, and economic rents have to be paid. If a man is to be worse off, it is again a question of a" non-worsening "payment which is subject to Income Tax.

I ask the Home Secretary to keep his eye on these things and make certain that there are not more anomalies caused by the Regulations than have been done away with. The indications are that there will be many anomalies; but we shall be satisfied if the Home Secretary will watch the position closely and see that all those who are affected by the Regulations are not worse off.

10.35 p.m.

The Under-Secretary of State for the Home Department (Mr. Geoffrey de Freitas)

These Regulations which are being prayed against substitute a new Fourth Schedule for the Fourth Schedule of the Regulations made in 1948. My right hon. Friend made both sets of Regulations under the Act of 1947, Section 17 of which expressly requires him to consider the recommendations of the negotiating machinery, that is, the National Joint Council, which is made up of representatives of the local authorities' associations and representatives of the men in the fire brigades—that is, the representatives of the association with which the hon. Member for Heston and Isleworth (Mr. R. Harris) is concerned, the National Association of Fire Officers, and the Fire Brigades Union. Parliament clearly did not intend that the Home Secretary should disregard recommendations made by this National Joint Council, or by the Industrial Court, unless there were very strong reasons for so doing. It was in view of this that the 1948 Regulations came to be made.

Since then the National Joint Council have again considered pay and allowances. Now, as a result of an Industrial Court award, these present Regulations have been made. Before these Regulations, the men in the Fire Service used to get not only their pay—that is, basic and pensionable pay—but either free quarters or rent allowance. Under the Income Tax law, a man occupying free quarters "as a necessary consequence of his employment"—I stress that, because it is not only the essence of the Income Tax law on this point, but also overwhelmingly important in regard to firemen—does not pay Income Tax on the value of those quarters. The man who received rent allowance instead did pay Income Tax on that rent allowance. I stress again that in the case of firemen, this "necessary consequence of their employment," is a factor of the greatest importance.

To make it fairer, therefore, those who got rent allowance were given this extra compensatory grant to cover the Income Tax they paid. That grant, like the rent allowance itself, was taxable. A compensatory grant may not have been, or may not be in the case of chief officers, who are still to be covered by it, the ideal solution of what is admittedly an extremely difficult fire brigade problem. It may even be opposed by some hon. Members on the ground of principle. But two points must be considered. The first is that this came to the Home Secretary from the negotiating machinery recognised by him under powers given him by Parliament. The second is, what alternatives were there? If we increased the rent allowance to take account of the average amount of Income Tax paid, it would mean making a flat rate of increase which would ignore the particular man's liability. It was obvious that if a supplement were added to the rent allowance of the amount of the estimated Income Tax, so that after paying the Income Tax the man would be left with the equivalent in untaxed rent allowance, it would most likely cause great hardship, as does any scheme which involves repayment of Income Tax within the same fiscal year, because there would be the disadvantage that liability to Income Tax could change during the year.

Mr. Boyd-Carpenter

Is not everything the hon. Gentleman has said an equally forcible argument for applying the same system to the Armed Forces of the Crown?

Mr. de Freitas

I would not say that I ask the hon. Member to consider the nature of the fireman's job in relation to the quarters he must occupy as a necessary consequence of his employment The system of rent allowance and compensatory payments is abolished by these Regulations which are being prayed against tonight, except for the small class of chief fire officers. Instead of it, we get a straightforward, consolidated, and pensionable scale of pay.

The hon. Member for Heston and Isleworth pointed out that there might be some anomalies as a result of the consolidated scales of pay, and that, because we had set up a "non-worsening" allowance—and I do not like the phrase, but that is its description—there might, in some cases, be no "non-worsening." The fact is that it is extremely difficult in any such scheme as this to prevent one or two anomalies creeping in; but those matters can be rightly argued in the National Joint Council. I ask the House to agree that these Regulations may stand.

Sir Wavell Wakefield (St. Marylebone)

Could the Under-Secretary answer this question? Paragraph 23 refers to free meals. Will the men in receipt of these meals be subject to Income Tax for that concession? This is a gift, and although I hope that they will not be taxed, the fact is that if they are free of tax there will be a departure from the principle applied in many other cases elsewhere in the country. Is this subject to Income Tax or not? Is it in keeping with the arrangements in other parts of the country for other industries?

Mr. de Frietas

So far as I know, it is not taxable.

10.43 p.m.

Mr. Joynson - Hicks (Chichester)

Everyone has listened to the Under-Secretary with interest, but I do not think he has made out any case whatever against the opposition to these Regulations. He has argued the matter, but he has argued it on the basis that he was in such a quandary that there was no alternative but to draft Regulations on these lines. But, surely, this quandary was brought about by the complexity of the Government's own legislation in the Rent Restriction Acts and on financial matters. He has put up no case to meet the anomalies pointed out, and I would ask if he appreciates that the Government are setting up a precedent in this matter? Does he realise that, as employers, the Government are saying—and presumably it is agreed that the Government should set the highest standards as employers—that where part of the employees are housed in and part are housed out, those housed out should be given free housing from the tax point of view? Does the hon. Gentleman bear in mind that that principle applies not only to firemen but to such people as school teachers, stockmen on farms, and, as we all know, to policemen as well as to members of the Armed Forces?

Mr. Speaker

I am not quite certain if that comes within the Amendments to the Order. I must remind hon. Members that we are discussing the Amendments and not the orginal Order.

Mr. Joynson-Hicks

I thought, Mr. Speaker, that I was following with accuracy the argument put before the House by the Under-Secretary. I should like to add the position of nurses and leave it at that, saying that the Government has put forward a principle which is of the greatest danger to the community as a whole.

10.45 p.m.

Sir Herbert Williams (Croydon, East)

Paragraph 28, which gives rise to this Debate is an amending paragraph, but it has to be put in because of the provisions of paragraph 15 which is not an amending paragraph but bears upon the situation. It reads: A chief officer and an assistant chief officer shall be provided by the fire authority with residential accommodation free of rent and rates or shall be paid a rent allowance of an amount determined with the approval of the Secretary of State by the fire authority, and where such accommodation is provided the fire authority may also provide free fuel and light. It is the lack of tied cottages which is the cause of all this trouble. We have the wrong Minister answering tonight. This has, in fact, nothing to do with the Home Office.

The Chancellor of the Exchequer ought to be here to deal with this, because he is the villain of the piece. When two gentlemen elsewhere got some large sums, he said they had to be treated for taxation purposes. Now the firemen are to be subject to taxation on their allowances. The Home Secretary quite rightly thinks that is rather unfair, as the result of discussions with the National Joint Council. So in order to relieve them of the burden imposed on them by the Chancellor of the Exchequer, the Home Secretary proposes another compensatory grant to every fireman who has to pay tax on the compensatory sum which he receives, because he has to pay tax on the rent he pays and tax on the coal, electric light, etc., which he uses, and that is very unfair

It means that two firemen working at the same station would be treated differently. The man who lives in has the same cash income as the other man, but one lives in and the other lives out. He is paid a sum sufficient to make up for his rent, coal, light, or gas or whatever it may be. This goes along to the Board of Inland Revenue and the Home Secretary says, "This is very unfair; I will grant to that man out of Home Office funds—partly local authorities' funds—a sum equal to that." Then will come along a gentleman from the Board of Inland Revenue to say it is a compensatory sum which has increased the man's income and is liable to tax. So they proceed to levy taxation upon the tax element of the compensatory sum. Then the kind-hearted Home Secretary will come along and pay another sum to make up for this second loss of income.

As my hon. Friend, who proposed this Motion at a time when hon. Members were not listening and did not largely appreciate its significance showed, this is a case of a cat chasing its own tail. The Home Secretary ought to talk to the Chancellor of the Exchequer and urge that where sums were paid to make up for what was in fact a tax-free element in people's incomes, the payment in lieu of rent, etc., should not be subject to tax. The proper place to deal with this problem is in the Finance Bill which we shall be discussing after Whitsuntide, and I hope the Home Secretary, who has had some training in mathematics, will explain to the Chancellor, who is not so well-trained, what is a geometrical progression.

What is necessary is a new Clause to the Finance Bill which I do not think would require a Financial Resolution. Really, it is quite a serious issue. I do not know whether the Under-Secretary of State is aware of the problem my hon. Friend has raised because he obviously has not come prepared to deal with it. I have great respect for the Joint Council, but it is not the Board of Inland Revenue and this is essentially a matter for the Board of Inland Revenue. Here we have a spectacle of a Minister, who in other countries is called a Minister of Justice, engaged in a conspiracy of tax-dodging. I hope that he will take some steps about it with the Chancellor.

10.50 p.m.

Mr. R. V. Grimston (Westbury)

I was extremely surprised at the case which the Under-Secretary put up in defence of this tax evasion by the Home Secretary in favour of firemen. It is something which is denied to Service men. I am particularly surprised in view of the fact that the Under-Secretary has spent the last four years or so as a Service Minister. As I understand it, allowances are granted to firemen which are subject to tax, and the Home Secretary is adopting extraordinary devices to see that they get these allowances tax free. Not very long ago the decision was taken that the allowances of Service men were no longer to be tax free.

The Under-Secretary has tried to put up a case for the firemen that they have to live on the job and that Service men do not. That is the most extraordinary case to put up. I am not quarrelling with the firemen getting their allowances tax free, but for a Minister who has been a Service Minister to come along in another Department and defend tax free allowances for firemen, when he has supported taxation on Service men's allowances, is beyond my comprehension. One can think of many cases where Service men of various ranks are just as much tied to the job as fire officers.

It is another instance of the attitude of mind of this Government, which will commit an injustice quite happily in one direction and retrieve it in another, and do so by means of the Home Secretary running counter to the declared policy of the Chancellor of the Exchequer. I merely wish to draw attention to the extraordinary state of affairs the Government get into, and to express the hope that those interested in the Services will take note of this departure. I hope that we shall have allies in the Home Secretary and the Under-Secretary when we press that Service men should also have their allowances tax free.

Mr. Speaker

That is quite another question.

10.53 p.m.

Sir William Darling (Edinburgh, South)

This is an interesting Debate at this time of the evening when the more important people seem to have gone. To me, the chink in the armour of Socialist administration becomes apparent. What we are discussing tonight is a proposal from the Home Secretary that he should arrange tax-free income for certain public servants. If this is the intention of these Regulations, as it must be, it reveals a very grievous state of affairs that servants of the State decline to accept the money bait and prefer to take it in the form of truck. It shows how far the state of our currency has gone. It shows what confidence there is in the pound when State servants want anything but money.

They want tied houses, whatever their prejudice may be against them. They want to have free electricity, light and heating. They want to have free meals. They want a complete revival of the truck system. All this is because the stability of the pound has been so materially changed. I am not surprised that the National Joint Council advised that the money the firemen are paid has little purchasing power—the firemen want something in their hands and something over their heads for the services they render.

The Home Secretary is in a dilemma. He has the difficulty of reconstituting this difficult service on more reasonable terms than those which existed during the extravagant period of the war. I suggest that he must much more boldly grasp the nettle than merely accept these recommendations. I suggest the right thing to do is to abolish tax-free allowances of any kind in this service and every other service. Abolish all the remnants and vestiges of truck and do not revive them again; pay every man and woman in the currency of the Realm. It would then be their duty to pay taxation as a lawful due in a currency that had a real purchasing value.

This is a very vital matter. If one group of civil servants is going to be paid in kind where does it stop? There is a proposal, partly achieved, that hon. Members will have part of their emoluments in the form of free food. There is no limit to the proposal as long as the currency declines. So long as questions of this character are proposed it is our duty to resist them, and resist them violently.

Mr. Henry Strauss (Norwich, South)

The Under-Secretary seemed a little surprised at the paragraph on which this question arose, but I think he gave a very reasonable explanation of its purpose. On the argument that the provisions are wanted by the men who will receive the benefits of that kind I do not wish to say anything. I agree with my hon. Friend the Member for Croydon, East (Sir H. Williams) that the reply we want is from some representative of the Treasury. The whole of paragraph 28 of these Regulations—I have not counted the number of lines but they appear to be about 40 to 50—could have been expressed in four or five lines so far as their meaning is concerned if the draftsman had been allowed to mention "tax-free payments." That would not have been in order because things of that kind can only be provided by a Finance Act.

What is going to be the position of the Chancellor of the Exchequer with regard to provisions of this kind? What would be the position if the example of paragraph 28, which forms the subject of the present Prayer, and which is presumably considered to be a good paragraph, were followed by anyone else? What would happen if it were followed by a private employer? The Government are putting it forward because they believe in it. Have we any assurance from the Home Office, if they are here putting this forward as a good example, that it would have the approval of the Treasury if it were followed by others, and that there would not be an attempt to hit it by retrospective legislation?

This is a serious question deserving of consideration. In saying that, and it is the only point I wish to raise, I am not questioning the reasonable case made by the Under-Secretary on the needs of the men for whom the paragraph is inserted. They will be getting something which it is reasonable to give them. I am raising my question on account of the precedent set and expressing the opinion that we ought to have heard the view of the Treasury on it.

Mr. de Freitas

It is only fair to point out that these Regulations do not extend the compensatory system. In fact they abolish it, except in the cases of about 30 chief and assistant chief fire officers.

Sir J. Mellor

But it does maintain the principle of the compensatory grant, and the ridiculous position in which a compensatory grant attracts Income Tax; that Income Tax attracts a further compensatory grant, which in turn attracts still further income tax, and so on ad infinitum. That absurd principle is maintained.

Mr. de Freitas

I agree that it does preserve it for the 30 or so chief officers, but for the others it does not do that at all. It just covers the tax paid last year, and the period from 6th April this year until 28th April, the date this Order came into effect.

Sir J. Mellor

Yes, but it still preserves the principle against which we have been praying. I am glad that the Home Secretary has attended and listened with great care to what has been said because I think something should be done. He would be performing a great service if he pointed out to the Chancellor of the Exchequer that paragraph 28 does really involve a reductio ad absurdum in taxation of allowances. I think he should bring his influence to bear to secure a more reasonable form of taxation which will not occasion the ridiculous contortions he is reduced to performing in paragraph 28. I know that the firemen do not want their arrangements upset now. Whether they are satisfied or dissatisfied, it would not be desirable that this Regulation should be annulled now, but I hope that the Home Secretary will really give this matter careful attention. I beg to ask leave to withdraw the motion.

Motion, by leave, withdrawn.