HC Deb 10 July 1956 vol 556 cc242-50
The Chancellor of the Exchequer (Mr. Harold Macmillan)

I beg to move, in page 20, line 40, to leave out from "him" to the end of line 41.

It might be convenient if we took at the same time the Amendments in page 22, line 25; page 29, line 3; and page 29, line 7.

These four Amendments will allow those with two sources of earnings, one of which is pensionable and the other of which is not, to qualify for self-employed relief in respect of the earnings which are not pensionable. The Committee will remember that this point was originally raised on Second Reading and was raised again in Committee, when hon. Members were thinking of such persons as university dons, who derive earnings from coaching and writing. Since that time other examples have been brought to our notice. In our last discussion the main types included solicitors in private practice who hold part-time pensionable posts as clerks to districts councils and other local bodies, and doctors in private practice who draw pensionable fees for part-time work as consultants under the National Health Service. It was thought that we ought to try to make a provision for such people whose service was partly pensionable and partly self-employed. We have tried to do so by these four Amendments.

The purposes of the first three Amendments is to delete from the three places in the Bill where they occur the words which restrict relief to those having no pensionable office or employment, and the fourth Amendment is consequential I hope the Committee will feel that by these Amendments we have carried out what was, I am sure, the general wish of the Committee in the previous debate in dealing with the problem of dual employment.

Mr. Gordon Walker (Smethwick)

The right hon. Gentleman, or one of his right hon. Friends, gave a pledge on this matter and, as far as we can understand it, the pledge has been carried out. We are grateful to him and support this extension of the original principle of the Clause.

Mr. Stevens

I rise to express thanks on behalf of my hon. Friends and myself who tabled the Amendment in Committee. The Chancellor has met our wishes in a remarkably clear and fair-minded manner, and I thank him very much.

Mr. Leslie Thomas (Canterbury)

I should like to endorse what my hon. Friend the Member for Langstone (Mr. Stevens) said, with reference to the Amendment down in my name and the names of my hon. Friends. I think the Chancellor's Amendments clear up a number of points and meet the difficult situation.

Amendment agreed to.

Mr. H. Macmillan

I beg to move, in page 21, line 22, to leave out from "or" to the end of line 24.

Perhaps we could discuss at the same time the Amendment in page 21, line 37.

These two Amendments are intended to strengthen the provisions of the Bill against the commutation or the assignment of self-employed persons' annuities. It is necessary for purely technical reasons to make the Amendments, which remove any such danger.

Amendment agreed to.

Further Amendment made: In page 21, line 37, at end insert: and that it does include provision securing that no annuity payable under it shall be capable in whole or in part of surrender, commutation or assignment".—[Mr. H. Macmillan.]

Mr. H. Macmillan

I beg to move, in page 22, line 11, to leave out "the individual" and insert "any person".

This Amendment is advisable for the following reason: the Bill allows a self-employed person to buy, instead of a straight life annuity, an annuity for his life or ten years from his retiring age, whichever is the longer. It also allows him to buy a life annuity for his widow to start on his death, but under the Clause as drafted there is no option to extend her annuity for a guaranteed period if she should die soon after he dies. This Amendment will allow the widow's annuity also to be for her life or for ten years, whichever is the longer. It has been suggested to us that this Is an improvement which will deal with certain cases which would otherwise be cases of hardship.

Amendment agreed to.

Mr. H. Macmillan

I beg to move, in page 22, line 15, at the end to insert: (e) in the case of an annuity which is to continue for a term certain, for the annuity to be assignable by will, and in the event of any person dying entitled to it, for it to be assignable by his personal representatives in the distribution of the estate so as to give effect to a testamentary disposition, or to the rights of those entitled on intestacy, or to an appropriation of it to a legacy or to a share or interest in the estate. (4) So much of subsection (1) of this section as provides that an annuity shall be treated, in whole or in part, as earned income of the annuitant shall apply only in relation to the annuitant to whom the annuity is made payable by the terms of the contract. This Amendment deals with two points relating to annuities guaranteed for a certain minimum term, and I think that the Committee would like just a short explanation.

Under the Bill, a self-employed person may buy an annuity that is to run from his retirement either for his life or for a stated term, which must not exceed 10 years, whichever is the longer. If he should die within the stated term the annuity for the remainder of that term will be payable to his personal representatives. The first part of the Amendment provides, as an exception to the general rule prohibiting the assignment of annuities which qualify for relief, that an annuity which is to continue for a term certain may be assigned by will, and that the personal representatives may assign it to a beneficiary of the estate. The second part of the Amendment provides that, where the tail end of a guaranteed term annuity is thus assigned to a beneficiary of the estate, it shall no longer attract earned income relief. The annuity is treated as earned income of the self-employed person while he has it, and also for the life of his widow. After that it is not.

Amendment agreed to.

Mr. H. Macmillan

I beg to move, in page 22, line 23, after "law", to insert "of any part."

I think that it may be for the convenience of the Committee if we were to take with this Amendment that in page 22, line 25.

These Amendments were drafted after certain representations had reached us, and I think that they both relate primarily to the position in Scotland. Two of the conditions that must be satisfied by a trust scheme set up to provide pensions for self-employed persons are, as the Bill stands, first, that it must be established under the law of the United Kingdom, and, secondly, must be established by a body of persons representing a substantial proportion of the individuals engaged in a particular occupation in the United Kingdom.

The first of these conditions, owing to an error in our arrangements, does not as it stands, allow for the differences between English and Scottish law, and the purpose of the first Amendment is to allow a scheme established under the law in any part of the United Kingdom—either United Kingdom law or Scottish law. The second of these conditions would exclude a purely Scottish, Welsh or Northern Irish body. The object of the condition is to ensure that schemes are set up only by representative bodies with some status and reputation. It is not necessary to require them to cover the whole of the United Kingdom. The only purpose of the conditions was to see that it was a reputable body that really had a serious existence. We are, therefore proposing this Amendment to admit either a Scottish or a Welsh or an Irish body so long as it fulfils the condition of being a reputable body of proper status in its own country.

5.45 p.m.

Sir James Hutchison (Glasgow, Scotstoun)

It is always easier and quicker to say "thank you" than to be critical or condemnatory. I am glad that my right hon. Friend has recognised that Scotland has a law code of its own, and that sometimes we think it is rather better than the English code, notably in the matter of executions. When I first saw this Amendment, it looked to me as if it might be interpreted as though Scotland were no longer part of the United Kingdom, so I take the occasion to say that it is, and that it intends so to continue.

Amendment agreed to.

Further Amendments made: In page 22, line 25, leave out from "individuals" to "engaged" in line 26.

In line 35, at end insert: or of those so engaged in England, Wales, Scotland or Northern Ireland".—[Mr. H. Macmillan.]

Mr. H. Macmillan

I beg to move, in page 23, line 39, at the end to insert: Service in an office or employment shall not for the purposes of this definition be treated as service to which a sponsored superannuation scheme relates by reason only of the fact that the holder of the office or employment might (though he does not) participate in the scheme by exercising or refraining from exercising an option open to him by virtue of that service. This is the last of this group of Amendments. Its object is to ensure that a man who elects not to join his employer's pension scheme shall be eligible for self-employed relief. It is quite true that a very large number of pension schemes are compulsory for all employees, but there are many which are voluntary. As the Bill is drafted, an employee in a post within the scope of a pension scheme would fall to be treated as pensionable whether he joined the scheme or not, and would, therefore, be ineligible for self-employed relief in respect of his salary.

That was not our intention, but we have been advised that that would be the effect of the Clause as it is drafted at present; in other words, even if the scheme were voluntary a person would be regarded as being able to take advantage of it and could not, therefore, take advantage of the self-employed system. The purpose of the Amendment is to put that right, and to make it clear that he can exercise this option if he so chooses.

Mr. Gordon Walker

With the general intent here we are in agreement. This is obviously a just thing. What I am not quite clear about from the wording is what happens if the man, not having joined the scheme, takes advantage of this provision and buys annuities and so forth and later joins the scheme. That does not seem to be dealt with. So far as I can see, he can go in and out of the employer's scheme, buying annuities here and there and then gaining the benefits under the employer's scheme. Is that not possible by this Amendment as now drafted? As the Chancellor explained it, we are in agreement with it. Goodness knows I do not set up to understand the language in which we are now dealing, but it did strike me that there might be a certain cat-and-mouse position by which a certain privileged class of person could get into both schemes as it suited them, one after the other.

Mr. Macmillan

I do not think that that would be the result. As the Clause is drafted, I think that the Revenue would have no option but to refuse his claim for Income Tax relief, if, being one of the people who could have joined a voluntary scheme, he refused to, but chose to go in for this. The Revenue would not allow a claim for deduction in that case. As the Clause is drafted they would have to say that he could not make the deduction.

As I understand it, this Amendment gives the Revenue the option, the administrative capacity, to say what should be done; and I think that all it does, therefore, is to remove an obligation on the Revenue not to grant it. I do not think that it allows a man to opt in and out or to operate both schemes at once, but it does take away what otherwise would absolutely prevent the Revenue from admitting his claim for relief.

Mr. J. T. Price (Westhoughton)

Perhaps the Chancellor could throw some light on the position of a man who has at some time been in a pension scheme under which he has been granted a deferred annuity—a frozen annuity—and, because of what may be a very small, nominal pension payable at a certain date or on reaching the age of 60 or 65, may be excluded from the self-employed provisions laid down in the main part of the Act. Has the Chancellor considered that there may be thereby an express prohibition against the admission of any citizen to the self-employed provisions for relief if, at some previous time, a frozen or deferred annuity has been granted under some existing scheme? Without wishing to enter into any heavy arguments about the technicalities, it does not seem to me that that is covered by the present legislation.

Mr. Macmillan

I must say that I find it rather difficult to follow the hon. Gentleman's point as he explained it. Admittedly, this is a new plan. It may be that we shall find, from year to year, that certain Amendments will have to be made.

Whatever might be the dangers, I think it would on the whole be better to make this Amendment I am now proposing. It is obviously unfair that a man who is employed somewhere where joining a scheme or not is a voluntary matter should have taken away from him the right to exercise that choice. What this Amendment does is to say that he can make a choice, and, if he chooses to go for the self-employed scheme, he is not automatically prevented from doing so. I am informed that he could not jog in and out.

I can only say that these problems, and the even more complicated point which the hon. Member for Westhoughton (Mr. J. T. Price) has just put, are matters we have got to accept at this stage; we have the scheme, it is a new one, and we must see how it works. I have no doubt at all that there may be some loose ends we shall have to tie up when we have got some experience of it.

Mr. Gordon Walker

I am not quite sure that the Chancellor has fully taken the point which I was trying to make. I did not quite mean jogging in and out, which would be rather an extreme version of it. The effect of the Amendment, as he says, is that the Treasury or the Board would no longer have to refuse a man the right to come under the benefits of Clause 20.

May I put my question in this way? A man may have an optional scheme with his employer, which he does not enter. He then goes on for three or four years and buys annuities, each of those annuities being the subject of separate and distinct contracts—that being the whole purpose of them—and then, having done that, he says he no longer wishes to do that but wishes to exercise his option to join the employer's scheme.

Would the Chancellor object to that? If he does, what is there in this Amendment to stop a man, not going in and out, as he suggested, but having for X years benefited from Clause 20 suddenly deciding that it would pay him to benefit under the Clause by coming under his employer's scheme, thereby getting the best of both worlds? He would be the only sort of legal creature who could get the best of both worlds in that way.

Mr. Macmillan

I am informed by that admirable tic-tac service, of which I have now had many years' experience, that the answer to the question raised by the hon. Member for Westhoughton (Mr. J. T. Price) is really this, as I understand it. We want to take away from a man, so long as he does not enter a scheme, what is now a prohibition from making this arrangement for himself. As the right hon. Gentleman the Member for Smethwick (Mr. Gordon Walker) says, they are separate arrangements. After some five or six years, a man may, in his present employment or, if he changes his job, in another firm, decide that he would like to come in, though, of course, one does not do that on quite such good terms; in an employment scheme there is always some disadvantage from a later joining.

I do not think that this Amendment prevents him doing that, nor do I see why he should be prevented. There would be no objection to that happening. I do not think that it is a very common thing to happen. The more common thing is that a man would exercise his right not to join a company scheme in order to join one of his own. I am told that, as it is drawn, there is nothing to prevent him doing that. I will think about the matter again, and perhaps we might look at it afresh next year, though I do not at present see that there is any objection.

Mr. J. T. Price

I do not want to prolong this discussion, and I am not raising this question in any critical spirit. I do, however, put it forward quite seriously as a matter of policy for this House. Many of us are anxious to safeguard the position of the established, individually administered funds as against the casual contracts which may be entered into by insurance companies prejudicial to existing rights which have been strongly defended in this House since the Act of 1921. It is from that point of view that we are putting these very tentative views forward, because any haphazard approach to this matter which might undermine the stability of existing funds would be something which many of us would regard as a quite wrong development.

Mr. Macmillan

I do not know whether I am being completely accurate, but I will put it in this way. The fact that a person had in the past had a pensionable post does not deprive him of the benefit of this Clause.

Amendment agreed to.

Clause, as amended, ordered to stand part of the Bill.