HC Deb 17 June 1952 vol 502 cc1043-55

(1) Where—

  1. (a) an individual assessable to income tax under schedule E in respect of any office or employment incurs expense in travelling between his residence and the place where the duties of his office or employment are performed; and
  2. (b) the said expense, or a part of it, is made good to the individual by the person under whom he holds that office or employment
the amount so refunded shall not (subject as hereinafter provided) be treated as income of that individual chargeable to income tax under Schedule E.

(2)The exemption from tax given by the immediately preceding subsection shall be limited to such part of the amount so refunded as may properly be deducted by the person making the payment in computing the profits and gains of his trade for the purposes of assessment and charge of income tax.—[Mr. Black.]

Brought up, and read the First time.

Mr. Cyril W. Black (Wimbledon)

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

I believe it is the established practice of the Inland Revenue authorities, in cases in which a firm or business provides luncheons or other meals for its employees without making a charge for them, to allow the expenses incurred by the firm or business as an expense for tax purposes but that the same allowance is not made in cases in which a firm or business pays the travelling expenses to its employees for travelling to and from their homes and places of work.

The purpose of this new Clause is to put from a tax point of view the payment of fares by a firm or business in the same category as the payment for lunches or for other meals. It may be said that there has been a very long practice in this matter not to allow such fares as an expense for tax purposes, but I submit that there are several new factors in this case which, at any rate, merit a reconsideration of the position by the Chancellor of the Exchequer, and I will mention quite briefly three reasons which, I think, constitute new grounds on which this matter at any rate ought to be considered.

First—and I am sure I should be out of order if I were to develop this at any length—fares have risen so much that they are a much more important matter nowadays in the case of many people who have to live a long way from their place of employment than they have been in former days when fares were much lower.

The second point is that a great many people nowadays, owing to the housing shortage, are compelled to live a long way from their place of employment, not because they want to live a long way away and have all the inconvenience and expense of long journeys between home and place of work but because they simply cannot find another home nearer to their place of employment. That is a circumstance which has certainly only operated to the extent that it operates today since the housing shortage became so acute during and particularly at the end of the war.

The third point which I suggest is another reason why this problem should be reconsidered is that a great many people are now being encouraged on grounds of national interest to transfer their employment from some business which may not have a high priority of national importance, and to take up what may appear to be very similar work to that which they are doing already but which will involve them in a much longer journey between their homes and the new place of business than the journey between their homes and their present place of employment. It would be a very great pity if these movements of labour, many of which I think the House will agree are very much in the national interest, were interfered with or frustrated because people were unwilling to pay the increased fares that might be involved in moving to another job further away from their homes.

This general problem of the heavy incidence of fares in the case of work— people of various kinds is being recognised by employers and is, perhaps, being recognised more by the more enlightened and progressive employers than those whose ideas may be more old fashioned. There are a good many cases today in which employers, in order to obtain suitable labour for important work in which they may be engaged in the national interest, are willing to pay the fares of prospective employees between their homes and their place of employment. But of course the difficulty is that if they do pay the fares, those fares are not under the existing law allowed as a business expense when the question of their tax liability comes to be settled between the firm or the business on the one hand and the Inspector of Taxes on the other.

5.45 p.m.

The whole purpose of this new Clause is to give relief to the extent of the tax involved to the firm or the business which undertakes to pay the travelling expenses of its employees between their homes and their place of employment. Of course, the principle has already been dented, if I may so put it, because in cases in which the employer provides and runs his own transport the cost of providing and running this transport is an allowable expense for tax purposes.

The builder, for instance, who has his own vehicles and who uses those vehicles for the purpose of picking up his workers at their homes and taking them to their jobs which may be a considerable distance from their homes, is allowed to charge the cost of maintaining and running those vehicles as a business expense against his profits. But if, instead of providing his own transport, he pays the fares of his employees on the public transport, then the fares are not allowable for tax purposes.

It surely cannot be in the national interest to perpetuate a system which, from a tax point of view, encourages employers of labour more and more to discourage their work people from travelling upon public vehicles and increasingly diverts their travelling into vehicles maintained especially for the purpose by the employer. I suggest that since this matter was last considered there has been a very great change in the circumstances surrounding the whole matter. Changes have taken place which, in my submission, justify the Revenue taking a rather more helpful and more sympathetic view of this problem than has hitherto been taken.

Sir Herbert Williams (Croydon, East)

I beg to second the Motion.

Mr. Douglas Houghton (Sowerby)

The hon. Member for Wimbledon (Mr. Black) dealt in passing with a much wider question, namely, whether expenses incurred in travelling to and from work shall be admitted as an expense allowed against Income Tax liability on wages and salaries. The proposed new Clause itself deals with a much narrower question, and I think it will be as well if we do not mix up the two.

I am sure the Financial Secretary is going to remind the House that there is a Royal Commission sitting which will, no doubt, receive evidence and give much consideration to this and many other difficulties and complexities in connection with Income Tax law. But on the wider question as to whether travelling expenses to and from work shall be allowable as a deduction against tax liability, there can be two and probably more than two points of view. I would only say, since I should be out of order if I were to develop that aspect of the matter, that the hon. Gentleman has not got the Trades Union Congress on his side, which is a very important consideration in looking at this matter.

But on the question of the new Clause itself, it proposes to allow a firm or an employer to deduct from taxable profits the expenses incurred in refunding travelling expenses of workers to and from their work. It also proposes to exempt from taxation the money value of the travelling expenses when the Inland Revenue come to add them to wages or salaries and say, "These are part of your income."

I think that if the House were to pass this new Clause it would give rise to many abuses straight away. It would certainly make widespread the whole practice of refunding the travelling expenses which, happily, at the moment is not widespread, but which, if the new Clause were passed, would rapidly increase all over the country, as indeed the meal voucher system has expanded all over the country. There are grave abuses already in connection with the granting of meal vouchers to workers.

From the aspect of trade expense it may well be argued by a firm which is big enough to have a canteen that they subsidise that canteen and that their workers get their meals at less than the economic cost; but they can set off against their trading profits the subvention which they give to their employees which are part of the staff welfare and part of the necessary arrangements which they make for their workers. But many firms and offices in the City who are not big enough to have canteens adopt the alternative plan of giving meal vouchers. These vouchers are encashable at a selected list of neighbouring restaurants, and when the worker presents a meal voucher he is entitled to a meal to the value of that voucher.

I am assured that in many cases workers come to a private arrangement with restaurants whereby they can have a meal to a smaller value than the nominal amount of the meal voucher and can get the balance in buns, cakes, bread or other articles which those restaurants sell. That is clearly an abuse of the arrangement, and we do not want to introduce into the field of travelling expenses the same kind of abuse which we now see in connection with meal vouchers.

A worker may walk to work but nevertheless claim the cost of his daily travel to and from his work. He may go by bicycle and yet claim the cost of public transport. In those cases the employer may feel bound in equity to refund to the worker who walks or bicycles to work the equivalent of the money being spent by other workers who are using public transport. I think the hon. Member for Wimbledon should realise that he is opening up a wide field of petty abuse and irregularity in connection with this matter. I think he will agree on reconsideration that he would not be furthering the cause which he mentioned in moving this Clause and that he would, in fact, be complicating and worsening the situation by pressing this Clause further.

Mr. Black

Would not the hon. Member agree that every tax arrangement or concession is liable to abuse in certain circumstances, and that it is the duty of the authorities, as far as possible, to close the door against abuses? The argument which the hon. Gentleman has put forward could very well have been made, as far as the general principle is concerned, against any kind of tax concession that is ever proposed.

Mr. Houghton

Since the hon. Member for Wimbledon has raised this matter, I would point out that there is a further question, which is that of equity as between workers who work for employers who refund their travelling expenses and workers who are employed by firms who cannot or do not refund those expenses. That is a further objection to this Clause.

Mr. Black

Why not encourage the employers?

Mr. Maudling

This Clause has been moved by my hon. Friend the Member for Wimbledon (Mr. Black) with some very powerful and interesting arguments. It is a matter which affects people living in many constituencies, particularly—to judge from the correspondence which I have had and which is no doubt, similar to that received by my hon. Friend—those living in constituencies surrounding London, who, nowadays, have expensive journeys to and from their work.

My hon. Friend referred to several new circumstances which, he said, seemed to strengthen the case for making this amendment to the tax law. He said that fares had been increasing. That is only too true, though they will not have increased quite so much in a few weeks' time as he thought they would do at the time when he put down this Clause. But the fact that the expenditure on this particular item is higher does not constitute a valid argument for saying that it is a type of expenditure that should be admitted as a permissible deduction for tax purposes.

The hon. Member also referred to the shortage of housing which undeniably restricts the choice of residence. I think I would be entitled to argue that that is a passing phase, passing quicker now, perhaps, than a year ago, though I do not want to embark upon controversy at this stage; I am merely stating facts.

The third point referred to people having to change their occupation as part of the drive for increased armaments and exports. That is also a strong point. I am quite certain that the Chancellor will consider all these points when he reads my hon. Friend's speech; but I suggest that they are transient points, for the large part, whereas we are dealing with a permanent provision of the tax law. I would suggest to my hon. Friend that the case he has made out, persuasive as it is, is not persuasive enough to justify what would be a very large change of principle in our tax arrangements.

He also drew the analogy in connection with payments made in respect of meals taken in canteens, and he drew some fire from the hon. Member for Sowerby (Mr. Houghton), who is always vigilant in pointing out that tax evasion is going on. I cannot accept what was said by the hon. Member for Sowerby about the grave and widespread abuses of the meal voucher system. I do not think that is true. If one looks for trouble one can usually find it. There are opportunities for abuse and no doubt there are abuses, but I do not think I should let it be said without protest that there are grave abuses of the meal voucher system which was introduced by the right hon. Member for Leeds, South (Mr. Gaitskell) or his predecessor. It all goes to show how anomalies tend to grow and possibilities of abuse arise when one makes extensions in the tax allowances system.

The law, as settled in the case of Nicoll v. Austin, is that where the employer undertakes a pecuniary obligation on behalf of an employee the amount spent by the employer in discharge of his obligation is liable to tax in the worker's hands as part of his salary. That is common sense. If one does not have a provision of that kind the employer would be able to assist his employee to evade a large amount of the proper tax on his remuneration by discharging expenses for him instead of paying him a wage or salary.

Sir H. Williams

Does that include a policeman's uniform?

Mr. Maudling

That is a point of detail which I should not like to answer offhand. The actual rules as to what expenses are deductible for Income Tax purposes are contained in what used to be Rule 9 of Schedule E and which is now paragraph 7 of the Ninth Schedule of the Income Tax Act of 1952. That provides that travelling expenses are allowed only in so far as they are expenses incurred in the performance of a duty or the carrying out of an occupation and not incurred in getting from one's place of residence to one's place of work. That was the decision in Ricketts v. Colquhoun.

Surely the very clear distinction of principle here is that between expenditure which is inherent in the job and which must be incurred by anyone carrying out that particular job, and expenditure which is really part of a person's own mode of living and which is in his own determination—expenditure which depends upon where or how he decides to live and which is not a necessary part of the job for which he is being paid.

Mr. M. Follick (Loughborough)

What about the salaries of Members of Parliament? They receive an allowance for travelling from London to their divisions and that is not in the actual performance of their duties to Parliament.

Mr. Maudling

I think that travelling between Parliament and one's constituency is travelling in the performance of one's Parliamentary duty. Travelling between one's place of residence and Westminster is travelling to and from one's Parliamentary duties. I do not want to go into the details of the rules governing the expense allowances of Members of Parliament, which are a little compli- cated, but that is the distinction made in law between expenditure incurred in carrying out a job and expenditure incurred in putting oneself in a position to be able to carry out that job.

6.0 p.m.

If this principle were breached in one particular, there would be many other claims which it would be difficult to resist. For instance, in certain trades special protective clothing is needed. Any worker doing the job needs this type of clothing and he can claim a tax allowance for the expenditure involved. But suppose that someone gets promoted to a job in which he has to appear well dressed— dressed respectably and perhaps rather more expensively than his usual custom. He may say, "I cannot take this job without buying a lot of new clothes. Before I take it I must spend a lot of money. Therefore, I should be allowed to set off that additional expenditure against my income." Surely, that would not be admissible.

Then there is the case of someone living in London who finds that the cost of living is higher than it is in some provincial centres. He might say," I have to live in London instead of in a provincial town and therefore the higher cost of living should be an allowable deduction for Income Tax purposes as an expense of my occupation."

Mr. J. McGovern (Glasgow, Shettleston)

Is the hon. Gentleman aware that in many factories and workshops the management buy special equipment, such as overalls, for both men and women, and that that is borne by the firm as a legitimate expense?

Mr. Maudling

That is exactly my point. The distinction in law is between expenditure necessary to the conduct of an occupation and expenditure that a person has to incur in carrying out his occupation because of his own personal circumstances. If a man chooses to live in the country he will probably get the benefit of paying a lower rent and perhaps lower rates. On the other hand, he will have to pay a higher fare when going to work. If we allowed the person the cost of his fare to and from his work then we should per contra allow a person the higher rent he has to pay because he lives in a more expensive place.

Mr. John Rankin (Glasgow, Tradeston)

Will the hon. Gentleman bear in mind that many people today when they go into the country to live on the new housing estates do not go into houses at cheaper rents than those they have paid in the past. On many housing estates the houses to which the workers now have to travel are let at higher rents than houses in the industrial parts of the cities which the workers have left.

Mr. Maudling

No system of taxation can take care of every separate circumstance. Any tax system has to strike a balance between logic and simplicity of operation and the fitting of every separate circumstance. Another feature is that the new Clause applies only in circumstances where an employer refunds to the employee the cost of travel.

There might be two people living side by side and working in different firms side by side. In one firm the employer might refund travelling expenses to the employee, and in the other firm the employer might not. In those circumstances, this Clause would work unfairly. One would get the benefit of the tax reduction and the other would not.

I am sure that my right hon. Friend the Chancellor of the Exchequer will study carefully the arguments advanced in support of this proposal. It is not a new proposal. It has been put before the House many times. As my hon. Friend said, there are certain special circumstances nowadays on the strength of which it can be argued that the claim is stronger than it used to be. Nevertheless, my right hon. Friend does not consider that the arguments are strong enough to admit a breach in what is a clear principle of tax law which has been established for some time. In the circumstances, I ask my hon. Friend to withdraw the new Clause.

Mr. Ellis Smith (Stoke-on-Trent, South)

I wish to place on record my satisfaction that an assurance has been given that the Chancellor and his officials are prepared to consider this suggestion between now and the next Finance Bill. I assure my hon. Friend the Member for Sowerby (Mr. Houghton) that none of us desires to be a party to increasing the danger of abuses. We know that already too much administrative expenditure is incurred in dealing with abuses. We all want to safeguard the position.

Having said that, I assure the Minister that there is more in this suggestion than appears on the surface. One of the greatest needs of British economy is mobility of labour. In spite of the optimism of the Minister, I do not think that the position is improving to any great extent. He was making a political point. Something should be done about this matter.

In Lancashire, thousands of men and women travel between 15 and 25 miles a day between north-east Lancashire and Trafford Park. It becomes a serious problem when one or more members of each family pays an abnormal amount for travelling of this description. Instead of improving, as the Minister suggested, it appears that the position will worsen considerably. I have had a number of letters from constituents asking that some action should be taken. In the present position we have not been able to do anything.

I hope that between now and the next Finance Bill the Minister will ask representative organisations to submit details to him. He should ask managements to request working people to put on paper details of their travelling expenses. He should consult the Ministry of Labour. I am convinced that if that is done a Clause of this kind will be adopted sooner or later.

Mr. Albu

I support my hon. Friend the Member for Stoke-on-Trent, South (Mr. Ellis Smith) in his plea to the Minister. I realise that the Clause as drafted is far too wide in one sense. In a way, it is also too exclusive. It would be unfair as between one employee whose expenses were refunded by his firm and another whose expenses were not. I do not know how that matter could be dealt with, but I am certain that we must consider the question of labour mobility, especially in the engineering trades.

The position in industries such as the aircraft industry which are having to expand rapidly is most serious. Local authorities have given housing priority for key workers, and so on, and no doubt this helps. I am sure that most of these firms would be willing to assist their workers by financial grants or otherwise, if they could get workers from a distance. Something must be done to assist them. It is no good the Minister saying that we shall solve the housing problem in any- thing like the time in which we have to deal with the re-armament problem and the balance of payments crisis. That was complete nonsense.

The immediate problem is the transfer of workers to essential industries many of which are having to be built up at a rapid rate. The aircraft industry is an example. Anything of this nature that can be done to attract workers into these industries, especially from areas where there is unemployment, should certainly be done. I am glad that the Minister says that the Government intend to look at this problem.

I am aware of the doubts of my hon. Friend the Member for Sowerby (Mr. Houghton). I think that the Minister under-estimated the extent to which there is tax evasion at present. It is natural for people to tend to evade the payment of tax if loopholes appear. This sort of change certainly provides loopholes. Nevertheless, there is a good deal in the idea. I do not agree with it for those who are permanently established in the outer London suburbs—and I have some interest in that myself. People who finally settle down in a certain area make up their mind to do so with a full understanding of the facts and of the conditions under which they do it.

Certainly, for the temporary situation in which we have to get a rapid transfer of labour, particularly key labour, to the engineering industry, this matter should be looked into. I do not know whether the hon. Gentleman will be in a position to answer the question next year, but I hope that by then the matter will have been given friendly consideration.

Mr. Black

In rising to ask leave to withdraw the Clause, I should like to thank my hon. Friend for the trouble that he has taken in explaining in some detail the circumstances in which it is felt the Government must advise the House on this occasion to reject the Clause. Although, not unnaturally, I am disappointed at the decision, I should like to thank my hon. Friend particularly for saying that the Chancellor of the Exchequer will take the trouble to read and consider the arguments that I endeavoured to put before the House, and I hope that consideration of those arguments may, perhaps, lead him to consider the matter when framing his Budget for next year. Having said that, I beg to ask leave to withdraw the Motion.

Motion, and Clause, by leave, withdrawn.