§ Where an employed person at any time becomes eligible to be a contributory member of a superannuation fund and is by virtue of his previous period of service permitted to begin membership of that fund from a date prior to his becoming eligible subject to the payment by him of back contributions, the amount of such back contributions shall for the purpose of assessment for income tax under Schedule E be allowed to be deducted as an expense incurred in the year in which such back contributions are paid or if the same shall be payable by annual instalments, such annual instalments shall be allowed to be deducted as an expense in the year or years in which the instalments are respectively paid.—[Mr. West.]
§ Brought up, and read the First time.
§ Mr. Granville West (Pontypool)
I beg to move, "That the Clause be read a Second time."
This new Clause is intended to remove an unfair discrimination against a considerable body of employed persons on their becoming contributory members of a superannuation scheme. As the Committee knows, there is a good deal of sympathy in all parts for superannuation schemes as such, and I am sorry that the Chancellor, at any rate, does not think that the argument which we are putting forward on this matter is worthy of his attention.
§ The Chancellor of the Exchequer (Mr. R. A. Butler)
The hon. Gentleman does me an injustice. I was just saying to my hon. Friend that I was glad we had reached the subject because it was one which interested me.
§ Mr. West
I am very glad that the Chancellor has given that intimation. He will understand, of course, that I was not in a position to understand from the cordial conversation in which he appeared to be indulging with his hon. Friend that was the reaction which this new Clause produced in him. At any rate, I think it clear that hon. Members on all sides of the Committee approve of superannuation schemes as such, and from time to time, I believe, the legislature has endeavoured to encourage superannuation schemes by giving tax allowances to those who make their contributions towards such schemes, whether they be employed persons or employers.
1750 The point with which I am trying to deal in this new Clause is that an unfair discrimination operates in regard to a large body of employed persons. We know that under the Finance Act, 1921, contributions made to superannuation funds by employed persons are regarded as a deductible expense in the year in which they are paid. That means that a person who becomes a member of a superannuation scheme has the benefit of tax relief throughout the whole period of his membership.
There are, of course, many superannuation schemes which are restricted in their membership. Many of them are confined solely to salaried officers of the concern, and, therefore, those people who have been fortunate enough to be employed in a salaried capacity in the first instance have the advantage of tax relief on their contributions throughout the whole period of their membership.
Wage earners are often excluded from the benefits of a superannuation scheme, but there are many schemes which provide that when a wage earner becomes promoted to the salaried class he is eligible to become a member. Having regard to the length of service with a particular employer, it is often provided that when a man becomes eligible to join a scheme he shall be permitted to antedate his membership, subject to his paying back contributions.
It is to the question of payment of back contributions that this new Clause is directed, because it is clear that on the authority of a case that was decided in 1950 the payment of back contributions is not regarded as an ordinary annual contribution, and, therefore, back contributions do not rank for tax relief. We feel that is unfair and something with which this Committee should deal because it operates most harshly against those very people whom we should seek to aid. We realise, of course, that the precise wording of the Clause may not perhaps meet with the complete satisfaction of the Chancellor, but we hope, at any rate, that the principle underlying it will meet with his approval.
I want to draw the attention of the Committee to a further point in support of my case. Although the wage earner who is promoted and becomes eligible to be a member of a superannuation fund is 1751 not permitted to have his back contributions deductible as an expense in the Income Tax year, an employer who makes a payment which is not an ordinary annual payment can nevertheless have it regarded as an expense in the year of payment, or, if the Commissioners of Inland Revenue think fit, it can be spread over a period of years. That is the principle which we seek to apply to wage earners who are promoted and become entitled to participate in a superannuation scheme and have to pay back contributions to qualify them for benefit through their period of service.
That briefly, is the case. We hope that its substance will find a response in the heart of the Chancellor. I hope I have not been unduly long in stating the case, and that that will also encourage the Chancellor to give it sympathetic consideration.
§ Mr. M. Turner-Samuels (Gloucester)
I very readily support this new Clause, and I am sure that the Chancellor will consider what can be done about it. My hon. Friend the Member for Pontypool (Mr. West) has explained that it deals with back contributions and tax allowances in respect of them. The only way in which the contributions referred to in the Clause differ from their normal condition of annual payment is that what is being paid in this case is a cumulative sum, and it is because the sum is cumulative that it is not eligible for tax allowance. Had the money been paid annually it would have been eligible for the allowances for which the Clause asks.
I hope that the Chancellor's second response will be as encouraging as was his first intervention, in which he said he was interested in the Clause. I want him also to take into consideration the fact that we are merely asking for employees what employers already enjoy. It does not seem too much to ask that that concession should be granted. I should also like the Treasury to appreciate that unless the concession asked for by the new Clause is granted, the Treasury are really taking an advantage which they are, in fairness, not entitled to take, because if the payment involved had proceeded in the normal way of annual payment, the allowances in respect of tax would have been made. It means that the Treasury are getting the benefit of the cumulative 1752 payment, to which, morally, they are not entitled.
One understands that points of drafting about the Clause may have to be considered. It may even be that the matter is bound up with embarrassments in connection with investigations which are at present being made over a wider field of similar matters, and one appreciates that that would have to be taken into consideration. Nevertheless, I urge the Government to look at the Clause on the basis that it has very strong merits and a very strong moral basis. Although, at the moment, there may be embarrassments and difficulties, I hope we shall be encouraged by being told that the matter will be looked into and that, when the other problems I have indicated have been settled, an attempt will be made to right what is undoubtedly a wrong.
§ The Financial Secretary to the Treasury (Mr. John Boyd-Carpenter)
I agree with the hon. Member for Pontypool (Mr. West) that this is a topic which will arouse sympathy in all quarters of the Committee and that there is here a real point of substance. It is true that this point of substance affects a substantial number of people, in particular a section of the community which has succeeded, very often by its own efforts, in improving its position, and, therefore, a section of the community with which all hon. Members of the Committee will feel very considerable sympathy.
The hon. Member for Pontypool admitted, as did his hon. and learned Friend the Member for Gloucester (Mr. Turner-Samuels) that, as drafted, the Clause might well contain a number of defects. I have had far too much experience of attempting to draft Amendments without the assistance which is available to those who sit on this side of the Committee to seek to make much of that point against Amendments which are tabled. Nevertheless, it is a fact that the proposed Clause does not contain the necessary safeguards against abuse which would have to be incorporated in any such Clause. It does not contain protection against abuse of its provisions, in particular, in connection with bogus superannuation funds. Hon. Members will realise that in dealing with these matters in these days of high taxation it is necessary to be very careful that one does not provide a loophole for ingenious people who desire 1753 not to bear the same burden of taxation as their less ingenious fellow countrymen.
There is a further consideration which I must put to the Committee. The hon. and learned Member for Gloucester indicated that he, too, had in mind the fact that the whole class of topics relating to taxation treatment of superannuation provisions is now before the Millard Tucker Committee. I understand that the whole subject is in an advanced stage of examination and that the drafting of the report of that Committee is now in progress. All hon. Members will agree that in those circumstances this Committee would be very ill-advised to legislate on one issue, whatever its merits, within the scope of the Millard Tucker review of the whole issue.
I have said enough, I hope—as did my right hon. Friend in an intervention—to indicate that we appreciate that there is a point of real substance here. It is clear that it is a point which my right hon. Friend will have to consider, and consider carefully, in the light of what the Millard Tucker Committee recommends. However, it would be wrong to pick this item out of the general topic and legislate upon it at the moment at which the Committee is drafting its Report. I assure hon. Members, as I have already done, that, when he gets the Millard Tucker recommendations, my right hon. Friend will bear in mind this point in particular with a view to considering what, in the light of those recommendations, it is sensible to suggest to Parliament.
§ Mr. Jay
I agree that there is force in the Financial Secretary's reminder that the point raised by the proposed Clause comes within the field of the Millard Tucker Committee, but as we are all agreed that it is point of importance, can the hon. Gentleman assure us, first, that the Millard Tucker report will definitely cover it, and, secondly, that the report will be available fairly soon? Perhaps the hon. Gentleman can tell us how soon he expects it.
§ Mr. Boyd-Carpenter
On the second point, I cannot say more than I have said —that drafting is taking place. The right hon. Gentleman has, I think, sufficient experience of drafting to know that the period of drafting sometimes takes longer in one case than in another. As regards 1754 the first point, I cannot pretend to anticipate how the Report will deal with the subject matters within its purview, but it seems to me—and I know that the right hon. Gentleman will agree with me—that this is within its terms of reference. The decisions on what is to be done in the light of what the Committee say or do not say will lie with my right hon. Friend. It is clearly within the terms of reference, and I think that we must wait for the report.
§ Mr. Houghton
I think that we can probably expect the Millard Tucker Committee to deal with this aspect of contributory superannuation schemes. The Financial Secretary will remember that one reference in particular to the Millard Tucker Committee was superannuation and pensions for self-employed persons with special relation to professional persons and those in business on their own, and in whose cases probably some form of single premium annuity provision is a common feature of their own pension provisions. In any event, in most of these cases some kind of retrospective payment is part of the arrangements they make for their own retirement, and it is very likely, therefore, that the Millard Tucker Committee will have to relate anything which it says on that aspect of the matter to the present taxation treatment of retrospective contributions under contributory vocational schemes.
There is one point which, I think, neither of my hon. Friends has mentioned, and which will be familiar to Members of the Committee on both sides. That is the increasing difficulty of middle-aged men getting employment by firms which have superannuation schemes. I have been much impressed and distressed by the experience of a friend of mine who has recently come back from India after holding executive positions there on finishing a term in the Indian Army. He is only 40 years of age, and naturally he is a person requiring a position of responsibility, having held similar posts, and he says that wherever he went, they said, "We have a staff superannuation scheme here, and you are a bit old to go into it. Without a retrospective contribution we cannot admit you. You have to find the contribution without any tax relief." In some cases they have not even offered 1755 him the opportunity of making back payments. He was told: "You cannot come in here because our scheme does not readily admit persons of your age to come into this scheme for the first time."
Unless we are very careful this very welcome provision, which is being made in many industries and by many firms, may become a stranglehold on the mobility of labour in different forms and at various levels. We do not want to stop a responsible movement of labour between one firm and another and one industry and another, and we do not want superannuation schemes to stand in the way. That is one aspect of the matter which, I think, is important.
I need not enlarge on what the Financial Secretary has said about the necessary safeguards in dealing with tax relief on superannuation schemes. The Committee will remember a whole string of Clauses which we introduced into the Finance Bill a few years ago, now Sections 386, etc., of the Income Tax Act, 1952, in which it was necessary to provide all sorts of safeguards against the misuse of superannuation provisions, especially by those who were in controlling posts in business.
I think that my hon. Friends have made a point here of considerable importance and I hope that the aspect of the matter which I have mentioned will be borne in mind when the Millard Tucker Committee Report is received.
§ 7.15 p.m.
§ Mr. Arthur Moyle (Oldbury and Halesowen)
I do not propose to detain the Committee for more than a minute or two. I rise to support the Clause introduced by my hon. Friend the Member for Pontypool (Mr. West). It has always been a puzzle to me why it is that under the Local Government Superannuation Act, 1937, the Treasury have always regarded the purchase of pension rights as ranking for exemption from Income Tax, yet in respect of superannuation schemes promoted by an industry, either by means of a trust fund or other means, where one gets precisely the same circumstances and where it weighs most heavily on the manual worker because he is always at the end of the queue when it comes to the distribution of pension rights, he has no exemption from 1756 Income Tax in respect of the payments he makes for past services to enable him to get a better superannuation allowance on retirement than would otherwise be the case if a long period of his service was non-contributory.
I was glad to hear the Financial Secretary's sympathetic observations, and I would conclude by saying that I think it is a wrong discrimination and one which certainly possesses no equity at all in relationship between manual workers in industry and those employed in local government or in the Civil Service, that one body of workers should get exemption from Income Tax for such payments when that is not the case when it comes to private superannuation and pension schemes within industry generally.
§ Mr. Hugh Gaitskell (Leeds, South)
I think that the Committee are indebted to my hon. Friends for raising this matter. There seems to be no doubt, and I do not think that it has been disputed on either side of the Committee, that there is here a very anomalous position. The Financial Secretary explained that he himself thought that this was a real point of substance. When he began his speech I hoped that he was going to end it with at least a promise of a new Clause drafted by the Government to be inserted at the Report stage.
That brings me to a question which I want to ask him. He admits, as I understand it, that what my hon. Friends have said is in fact correct, that the contention is reasonable, and that a change ought to be made. He says that the drafting of the Clause is deficient in various ways, which is not surprising and very often happens when the Opposition draft without the assistance of the skilled personnel available to the Government. He then falls back on the fact that the Millard Tucker Committee are considering this whole matter.
Of course there are circumstances in which that is a reasonable excuse, circumstances in which to make a change in the law in advance of a report might lead to further complications, but he did not explain to us what precisely these complications were. Will he please tell us why, if the Government agree with what my hon. Friends have said, it is not possible for them to draft a Clause and insert it in the Bill on the Report stage? Although 1757 the Millard Tucker Committee Report is likely to be published soon, so we understand, that means, of course, that the law cannot be changed at the earliest until next year, and we cannot even be sure of that. We do not know for certain that this point will be covered in their list of recommendations, and I think that in those circumstances the Committee are entitled to a fuller explanation from the Government as to why it is they do not wish to change the law now. What is the difficulty that would arise, if these points of substance were correct, supposing the law were to be altered?
§ Mr. Boyd-Carpenter
Yes, I gladly respond to the right hon. Gentleman's invitation. In the first place, the point that I hoped I made clear to the Committee was that we see that there is a point of substance here; but I did not commit myself to the view that it was necessarily being dealt with in the best way by the precise proposals put forward. One example is this, and here we come directly to the right hon. Gentleman's point as to the interaction between what it may be found desirable to do in the light of the Millard Tucker Committee's recommendations.
The Clause as drafted maintains the present existing general differentiation between the treatment of superannuation based on superannuation funds and superannuation based upon assurance policies. It perpetuates that differentiation. I do not know, nor does any Member of the Committee know at this stage, what view of that extremely important question the Millard Tucker Committee will take, but it clearly would be, it seems to me, wrong for us to legislate in the sense of accepting that existing differentiation at least until we know whether the Millard Tucker recommendations are to be in favour or against its perpetuation.
That, I think, is the major consideration, apart from the more general one with which the right hon. Gentleman will be perfectly familiar, that it is extremely inconvenient to legislate on a particular point in a subject when it is at least probable that one will be having to recommend legislation somewhat more widely over the field before very long. That is the general consideration, with 1758 which the right hon. Gentleman is familiar, and which, therefore, I do not need to labour. There is the particular one of the differentiation between schemes financed in the two ways that I have mentioned which could give rise to very considerable difficulty if the Millard Tucker Committee in its recommendations took a certain view and if my right hon. Friend, on considering them, accepted it.
That is why, with some reluctance, as I have already said, and repeat, I cannot accept the new Clause, though there is a real point here which we shall certainly consider very carefully in the light of the Millard Tucker recommendations when we get them.
§ Question put, and negatived.