§ The Temporary Chairman (Sir Norman Hulbert)Before calling the hon. and learned Member for Northwich (Mr. J. Foster) to move the Amendment standing in his name, I should say that it would appear that we could also discuss the two Amendments in the name of the hon. and learned Member: in page 23, line 10, to leave out from "him" to the second "or" in line 11; and, in line 29, at the end to insert:
(8) If during any relevant year of assessment an individual is the holder of a pensionable office or employment, any payment made by that individual under a sponsored superannuation scheme in respect of which relief is granted under any provision of the Income Tax Act, 1952, shall not be deemed to be a qualifying premium and the amount of such payment shall be deducted from the maximum amount which maybe deducted from or set off against his relevant earnings under the provisions of the next following section.and the Amendment in the name of the right hon. and learned Member for Kensington, South (Sir P. Spens): in page 20, line 41, at the end to insert:or is a holder of any pensionable office or employment to which is related a sponsored superannuation scheme, the terms of which are conformable to the following subsections of this section and under which the contributions of the individual and the employer are together less than the maximum amount deductible under section nineteen of this Act".and the Amendment in the name of the hon. Member for Sowerby (Mr. Houghton): in page 23, line 41, after "to", to insert "whole time".
§ Mr. John Foster (Northwich)I beg to move, in page 20, line 40, to leave out from "him" to the end of line 41.
The object of this Amendment is very simple, but I think it is important. As the Committee knows, Clause 18 provides for retirement annuities for people in a trade, profession or vocation, and also those who are employed but are not the recipients or payers under a sponsored pensions scheme. The Clause as drafted seems to exclude those people who have, 322 so to speak, a double employment, such as a doctor who earns so much in his practice and who, as a registrar of a hospital, is a member of a sponsored pensions scheme. I think the Committee will probably agree that it would be an undesirable result if such a person were excluded, and the object of these Amendments is to cure that position.
The way in which we suggest that it should be cured is to take the pension premium which is paid under the sponsored scheme and deduct it from the maximum which is allowed under the new scheme in respect of a self-employed person's retirement annuity. To give an instance, if a solicitor were in receipt of £2,000 a year from his practice and were also a clerk to the justices at £500 a year, assuming that as clerk to the justices he paid £50 a year under a sponsored pensions scheme, he would be allowed under the Amendment—but not under the Clause as drafted—to come into the retired annuities scheme by being allowed to pay a maximum premium of 10 per cent. on £2,000, less £50. At present, as the Clause is drafted, he would be ineligible for the benefits of the new scheme because he would be already a payer under a sponsored pensions scheme. The problem is as simple as that, and I commend the principle of these Amendments to my right hon. Friend in order to deal with the position.
A difficulty which looms ahead concerns the position of the man who is in employment and is already a member of a sponsored pension scheme, but the scheme does not take care of a sufficient slice of his income—for instance, someone who is receiving a salary of £20 a week but his sponsored scheme is the equivalent of a salary of only £5 or £10 a week. That position is not dealt with in my Amendments, but it may well be urged on my right hon. Friend that it should be covered, too. In the meantime, I feel that the person in double employment, whose circumstances I have described, should be allowed to come under the new scheme.
§ Mr. John Taylor (West Lothian)The hon. and learned Member for Northwich (Mr. J. Foster) has moved his Amendment with characteristic moderation, and I should like, on behalf of my right hon. and hon. Friends. to give him every support for the principle behind his group of 323 Amendments. He might well have pointed out that this considerable body of self-employed people, mainly professional people, read the Chancellor's Budget speech with great satisfaction, and then a great many of them, when the Bill was published, found that they were not included within the provisions of the Clause.
The hon. and learned Member has mentioned a considerable body of people whose income from practice might be about £2,000 and whose subsidiary occupation might bring them a small annual income of £500; but because that subsidiary occupation is pensionable, they cannot benefit from the provisions of the Clause. In other words, 20 per cent. of a person's total income renders him or her ineligible for this tax relief.
May I mention a far less considerable body of people with whom I am in closer contact and whose proportion of pensionable subsidiary income is, as a general rule, very much less than 20 per cent.? Consider the position, for instance, of the town clerks of the small burghs, particularly in Scotland. There are about 150 of these small burghs which do not employ full-time town clerks. All but a very few of the small burghs employ 41 part-time town clerk.
The civic duties of most of these clerks occupy only a small proportion of their total time; in many cases a few hours a week will suffice for the conduct of their duties as town clerks or burgh chamberlains. Such a man's main income is obtained from practice, almost invariably as a solicitor in the burgh. Nevertheless, I believe in every case the office carries a small superannuation scheme which bars these men from the relief provided in the Clause, although the superannuation scheme is in respect of a very small proportion of their total income.
7.15 p.m.
They could escape from this disqualification by resigning their offices as part-time town clerks, particularly in the smallest of the small burghs, but that would not solve the problem, because we require qualified persons as town clerks, since they have a very important responsibility. They have a multitude of duties, which may be small in the amount of time they take up but which are nevertheless important in the public weal and 324 in local government, civic interests and the national interest. We keep giving them more and more duties to do. Some qualified persons would have to undertake the job if they resigned, and because of this bar and this absence of relief arising from such a small part of the income, there might be a reluctance on the part of the best type of qualified persons to undertake the work.
I am speaking for that perhaps very small group of people, but I dare say other hon. Members will think of other groups of people to whom this disqualification is a serious disadvantage and, In view of the hopes which had been built on the Chancellor's Budget speech, a great disappointment. I think that the group of Amendments could very reasonably be accepted by the Chancellor and the Bill amended to cover self-employed persons who are performing important public duties, for whom this advantage was welcomed by both sides of the House and who at the moment feel, quite legitimately and understandably, a sense of grievance.
§ Mr. H. BrookeThis is an important Amendment, and the reason for which I rise early in the debate is because I want to see whether I can be helpful to the Committee. The Committee will appreciate that in Part III of the Bill, on which we are embarking, we are breaking fresh ground. It is relatively easy to amend and polish an existing body of tax law, but here we are venturing into something new, and my right hon. Friend and I have made it clear from the outset that we should count ourselves almost too fortunate if we got everything right first time. We have therefore presented Part III in this form, hoping that under ordinary democratic processes it would be examined by those who are affected and by those who are expert and that we should receive the benefit of their views.
I need hardly say that since the Bill was published several weeks ago my right hon. Friend has received a good many representations on different points in Clauses 18, 19 and 20. He has authorised me to say that on Report he will put down certain Amendments to Clauses 18 and 19. It would be out of order for me to try to anticipate affairs by speaking more definitely at this moment. At this stage, all I can tell the Committee is what he has in mind about these people. whom 325 the Millard Tucker Committee referred to as the "partially provided for" persons. My right hon. Friend is very sympathetic to this problem and he has been seeking whether there is an overall solution to it. I do not think there is, but, as I will endeavour to show the Committee, there is a solution in the case of one of the two classes of people affected.
There are two broad classes. First of all, there are the whole-time employees who have a pension scheme, but a pension scheme which provides benefits smaller than what one might describe as the normal scale. The Millard Tucker Committee made certain suggestions for their benefit. It suggested that those people should be entitled to the relief, but that the annual premium to be allowed should be abated to take account of the extent to which the benefits fall below the normal scale.
I think that Amendments which are in this group now under discussion are designed to help that class of person. The difficulty is this. The Board of Inland Revenue has examined with the greatest and most sympathetic care the recommendations of the Millard Tucker Committee for these people, but I am bound to say that they simply would not work in practice. Nor have we been able to find any alternative method of assisting them.
If the hon. Members who have put down these Amendments will examine them, I think they will find that the proposals would operate to the benefit of, for example. the civil servants who receive full pensions in regard to which neither they nor their employers make any contribution. Quite clearly, that is not the kind of person whom it is desired to bring in, because they have adequate pensions otherwise.
I hope that the Committee will accept it from me that we have not examined this matter seeking to find reasons for turning it down, but the more we look into it the more we are convinced that it is not practicable to assist, under these Clauses, the type of person who is in full-time employment of a pensionable character, but where the pension itself is less than the normal scale. The only encouragement I can give to people of that type—and I think that I mentioned this point in my Second Reading speech—is that if they are so minded as to 326 put their savings into the purchase of ordinary life annuities they will, by Clause 22, get the benefit of exemption from tax of the capital portion of the annuities they receive.
We now come to the second and what I would venture to call the more important class here—those who might be termed "two-job men." I think that my hon. Friend the Member for Carlton (Mr. Pickthorn) was the first to draw attention to this class in a speech which he made to the House at an earlier stage of the Budget debate. He quoted the university teacher or lecturer, part of whose income may come from pensionable employment but who adds to it by writing or lecturing outside. Nevertheless, under the Clause as it stands, he would be debarred from the opportunity of taking advantage of the provision. A further case has just been mentioned by the hon. Member for West Lothian (Mr. J. Taylor)—the case of the solicitor who acts as a part-time town clerk to the local council. His salary as town clerk may be by no means half of his total emoluments, but because part of his earnings are from pensionable employment he is cut out by the Clause as it stands.
This is a problem to which my right hon. Friend thinks he can offer a solution, especially as these may be the very type of people whom the Clause is designed to help. They are professional or self-employed people who, maybe just by chance, have some part-time post which carries a pension with it. My right hon. Friend therefore authorises me to say that he proposes to bring forward on Report an Amendment which will have the broad effect of allowing these "two-job men" to pay qualifying premiums for deferred annuities up to 10 per cent. of their earnings from sources other than the pensionable employment.
The maximum figure for them will, of course, have to be suitably reduced so that, taking pensionable and non-pensionable income into account, relief will not run at a greater amount of income for the two-job man than for the man who is wholly self-employed and can obtain the benefit. I hope that that will be generally acceptable. The Amendment will appear in good time for the Report stage. I am sure that the Committee will desire to examine this carefully then, but 327 I am giving a firm pledge, and I hope that I may have said enough to satisfy my hon. and learned Friend the Member for Northwich (Mr. J. Foster) that he would not be betraying the interests of these people by withdrawing his Amendment now.
§ Mrs. Eirene White (Flint, East)I am sure that we have all been glad to hear the Financial Secretary give the undertaking which he has given, because I think that hon. Members in all parts of the House were very much disturbed at what appeared to be a most serious anomaly in the Bill as originally drafted. As we have been promised details at a later stage, I do not propose to go into them now.
I should like to say, however, that personally I am glad that the Chancellor has not found means of dealing with the other group. I am perfectly aware that this other group has a case, but I think that that case is not against the Chancellor of the Exchequer but primarily against their employers. The other group to which I refer is that mentioned in paragraph 451 of the Millard Tucker Report, in which it is estimated—and it is only a rough estimate—that there are about 3 million employees at the present time who have in connection with their employment pension schemes which are inadequate.
It seems to me that it would be doing a positive dis-service to these people to say to them, "Your employer is under no further obligation to you because now, under the new scheme, you will be able to look after yourselves". Therefore, I think that it is to be welcomed that in regard to these particular people the Chancellor has not found a solution. I am sure that he would have found it extremely difficult. Chapter 7 of the Millard Tucker Report is one of the more complicated chapters of a very complicated Report, and even the suggestions made in the Minority Report by Sir John J. Cater and Mr. Woodcock, based on variations of the income from insurance premiums, would, from the administrative point of view, have been very tricky to say the least. I am therefore not surprised that the right hon. Gentleman the Chancellor has not been able to deal with this.
Frankly, I think that it would have been socially undesirable to have 328 weakened the bargaining powers of employees vis-à-vis their employers on this matter of pensions. While I have very great sympathy with the individuals concerned, taking the general good into account I think that it is, on the whole, better that they should now be fortified by the inability of the Chancellor of the Exchequer to admit them into his new scheme. They will now be able to go to their employers with much greater force and strength and say, "It is perfectly clear that we are now a downtrodden group of people and it is really up to you to revise your pension scheme to bring us to a reasonable level both as compared with other employees and with the self-employed who now have provision made for them." I do not very often agree with the right hon. Gentleman but on this I do agree; the conclusion to which he has come is, in the circumstances, the most satisfactory one.
§ Mr. J. FosterThe subject which the hon. Lady the Member for Flint, East (Mrs. White) has mentioned is very much linked with the desirability of pension schemes being transferable. That is very desirable, and anything that the Government can do to help by legislation I think they ought to do. The reason that it is connected is that it makes it easier for employers to establish a pension scheme and makes it much easier for labour to be mobile. I welcome the assurance given by my right hon. Friend and thank him for it.
§ 7.30 p.m.
§ Mr. HoughtonI, too, welcome the agreeable and helpful speech which the Financial Secretary has made. I readily admit to the hon. and learned Member for Northwich (Mr. J. Foster) that he has a better solution than the very simple one in my Amendment. Just to insert the words "whole time" before the word "service" in page 23, line 41, hardly accomplishes what we want to do, and I am glad that the hon. and learned Member thought of a better way of doing it, which I am sure will be the way in principle which will be followed by the Chancellor of the Exchequer.
On the broader issue of inadequate pensions, there is a whole complicated, seventh chapter in the Millard Tucker Report. One of the signatories of the Report was Sir John J. Cater, a retired chief inspector of taxes who ought to 329 have known better than to have put his signature to a lot of rigmarole like that, but I am sure that he did his best. Chief inspectors of taxes have not a special reputation for simple expression and I have no doubt that he was under some kind of vocational handicap.
This is a very big problem. I agree with the Financial Secretary that we are now moving into an untrodden field, and I am sure that it is only a beginning. We shall have to embellish, strengthen, smooth rough edges and remove anomalies. I am sure that no matter how hard the Committee tries to help the Chancellor and the Financial Secretary, they cannot possibly get it right the first time.
I should like to draw attention to the position of a number of people who are in sponsored schemes and will be excluded by rigid adherence to subsection (9). They are people whose inadequate benefits flow from the simple reason that the employer or those who are organising the superannuation scheme will not allow back service to count. It is not that the scheme itself is inadequate for the future entrants who will serve the whole length of time in the scheme. The Chancellor will recall that he has a very large number of civil servants to whom has not been granted credit, for superannuation purposes, for the full length of their service.
I use that merely as an example and not because I wish to draw attention to any special grievance they have. They must share with many others in sponsored schemes the inability or unwillingness of the employer to cover them for the whole of their service. That accounts for the majority of people who are in sponsored schemes and have inadequate benefit.
I do not think that it is, on the whole, the failure of the employer to provide a useful scheme when he introduces it. In its framework and fullness of benefit it is in many cases a reasonably good scheme. I do not know of a scheme where a man receiving a salary of £1,000 a year is told by his employer that the benefit he will provide will be £1 pension for a lifetime of service. I do not think that there are many of those. These schemes are generally reasonably good schemes. We know the difficulties of financing them without requiring substantial contributions both from employers and workers in order to finance their retrospective effect; and not in all circumstances would payments for 330 retrospective benefits qualify for tax relief. We therefore have to bear that point in mind as well.
How, then, is the Chancellor to deal with people who are in these schemes and are handicapped by the restriction of the amount of service that is allowed to count for pensions? Like my hon. Friend the Member for Flint, East (Mrs. White) I also have no desire to weaken the employees and their organisations in their discussions with employers on superannuation schemes. We do not want to give the employer the opportunity to say, "There is no need for me to do anything now. You can go on the scheme which the Government have provided and make good any deficiencies in my scheme by taking out a policy under the provisions of the Finance Bill and getting tax relief on the amount of premium you pay." We do not want that argument to be used.
How, therefore, are we to provide for those whose employers give a reasonable scheme but who cannot, for reasons which in many cases are quite reasonable—and which the Government themselves on occasions have given for not covering past service—the opportunity of taking out policies under this scheme? That is the question to which the Chancellor will have to find an answer. It will be difficult, but he may find a formula. There are ingenious people waiting his command. They will think out a scheme which will have only one defect. It will be so equitable that it will be too complicated.
Our passion for equity makes complications of otherwise perfectly simple ideas, but I hope that the Chancellor will find an answer to the problem and that it will be possible to widen the cover for those who are not fully provided and to go beyond the Amendment.
§ Mr. Gordon WalkerI was very glad to hear what the Financial Secretary had to say about his right hon. Friend's intentions on Report, and we shall look forward with great eagerness and, I hope, pleasure to his Amendments. This is a considerable problem. As my hon. Friend the Member for West Lothian (Mr. J. Taylor) has said, a great many people found themselves left out when they began to have the Finance Bill interpreted to them. I understand from 331 the Millard Tucker Report that there are 3 million, a very large number, falling into two classes—the under-pensioned in not very adequate schemes, and the people who are in double or part-time employment.
Is there any idea yet of how many of the 3 million fall into each of these two classes, or is that absolutely impossible to say? How many of them fall into the double or part-time employment class? My hon. Friend the Member for Sowerby (Mr. Houghton) was rather inclined to think that a very considerable number would fall into that class, which would certainly make us happy, because they have the better claim.
My hon. Friend the Member for Flint, East (Mrs. White) and my hon. Friend the Member of Sowerby said that there was not very much of a case for the under-pensioned, those in full-time employment who have rather ineffective pension schemes, and that if we did anything about them it would weaken their bargaining power and the power of their trade unions. There is, of course, a very great deal to be said for that point of view.
On the other hand, there is an injustice falling on the individual people in that they are actually debarred through being under-pensioned, that is, in an inadequate scheme, from the benefits which the Chancellor will give under the Bill. They are actually debarred by the fact that they are drawing an inadequate pension. Of course, there is the dissent by Mr. Woodcock to the Millard Tucker Report, and somebody else, I believe, and I am not quite sure that there is not something to be said on the other side of the case as well as for the case my two hon. Friends have stated. It is a very difficult thing to balance.
§ Mr. William Shepherd (Cheadle)It is not the case, as the right hon. Gentleman appears to assume, that those inadequately pensioned persons are in a static position, because almost every day companies are writing policies to increase pensions provisions which may have been started 20 years before. Constant change is made.
§ Mr. Gordon WalkerOf course there is constant change. That would not be very complicated, because under the 332 Bill each contract which a person makes for an annuity is a separate and distinct contract. The complications of this lie in something else. They lie in the sheer complexity of working out a formula. I quite agree that the Millard Tucker proposals in Chapter 7 of the Report are incredibly complicated and difficult to understand, and, I imagine, wholly unworkable.
Some of the things the right hon. Gentleman said made me think that there may be ways of finding some solution to this problem. One does not want, of course, to include civil servants and people of that sort. We have in the 1947 Act the idea of the notional contribution. It is possible to work out what a notional contribution would be to a pension, and under the 1947 Act that is done in many cases, and it could be used to exclude civil servants and similar people, and to calculate what is an adequate or an inadequate pension.
I therefore hope that the search for fuller justice for those people in part-time work will continue. As my hon. Friend the Member for Sowerby said, we must not give up. This is something which we all want to do if we can do it, and I hope that the Treasury, which is the best-equipped of all to make the search, will not give up the search, because if we can have a solution under both heads we shall be even more pleased.
§ Mr. J. FosterI beg to ask leave to withdraw the Amendment.
Amendment, by leave, withdrawn.
§ Mr. John Arbuthnot (Dover)I beg to move, in page 22, line 12, to leave out "five" and to insert "ten".
In considering this problem of retirement and pension schemes, anybody who is thinking of going in for one of them will want to safeguard himself against the possibility that, having paid premiums for a considerable number of years, he may have the ill luck to die before he reaps the benefit from his premiums. It will give him peace of mind and be a great help to his family to know that, if he dies before he draws the benefit of the premiums through a pension, there will be an annuity certain payable to the family. As the Bill is drawn the length of time for which that annuity certain can be drawn is five years only.
333 Our Amendment proposes to extend the period from five to 10 years. I would say to my right hon. Friend the Financial Secretary that, personally, I cannot see any reason for any limit at all on the period for which the annuity certain may be drawn. I should have thought it could have been left without a time limit, because the longer the period for which the annuity certain is drawn the smaller will each annual payment on the annuity certainly he. Therefore, I hope that in the "polishing process," to which my right hon. Friend referred, and which will take place in future Finance Bills, it may be that the limitation on the length of the annuity certain will be wiped out completely.
This is my ultimate objective, but, as a preliminary, I suggest that the figure of five years be replaced by the figure of 10 years, which, I think, will be more realistic and more encouraging to people to provide for their old age. They will then know that, if they die earlier than they expect, their families will at least get something from the premiums which they have paid up during their working life.
§ 7.45 p.m.
§ Mr. H. BrookeI think the Committee will appreciate that the object of the subsection which my hon. Friend the Member for Dover (Mr. Arbuthnot) seeks to amend is to meet the natural desire of people who feel doubtful about committing themselves to a policy of this character if they foresee the possibility that very soon after the annuity begins to become payable they may die and, therefore, may get very little of their money back. That is why we wrote this provision into the Bill. The Amendment suggests that the five-year period for the continuance of the annuity should be extended to ten.
My hon. Friend went further than his Amendment and asked us to consider in the more distant future whether there is a necessity for any time limit at all. I think there is a necessity for a time limit as there is for having some provision for the period for which the annuity should be payable. I think it would be out of place to allow a man to provide for posterity for an indefinite period when the whole purpose of the Clause is to encourage people to save for their own old age or for that of their wives.
334 As between five years and ten years, I think my hon. Friend is perfectly justified in asking us to consider whether it would not be better to make it ten years rather than five. There is nothing sacrosanct about either of those figures. If it is the general view of the Committee that a ten-year period would be more reasonable and more attractive than a five-year period, then I can say that my right hon. Friend is quite prepared to accept this Amendment.
§ Mr. J. T. Price (Westhoughton)I have the impression that both the hon. Member for Dover (Mr. Arbuthnot), who moved the Amendment, and the Financial Secretary have got the point wrong. In a pension fund it is laid down that payment of the annuity is payable for life. If we introduce a term certain, of five years —or x years—it merely means that, if the annuitant dies, there is a five-year pension payable to the estate. That does not place a term on the possible length of time, which is the whole lifetime of the person enjoying pension. This brings in an actuarial consideration which has been, it seems, forgotten by the right hon. Gentleman. The actuarial consideration is an average expectation of life, which, in the case of a male annuitant aged 65, is 11½ years. If the term is fixed at ten years certain, an enormous burden is placed on the capital value of the pension which is converted. I suggest that the point needs much more careful scrutiny than the right hon. Gentleman has appeared to anticipate in his short remarks in giving a favourable reception to the proposal. It is by no means as simple as he supposes.
§ Mr. H. BrookeI am not sure whether the hon. Member has studied carefully the line of the Bill which it is proposed to amend. It does not specify five years. It says "not exceeding five years". All we are doing now is to widen somewhat the conditions which a policy would have to fulfil.
If we did not amend the Bill, an annuity which was payable for the lifetime of the annuitant but which provided that in the event of his death it would be payable for a minimum period of six years, would not in future qualify under the Clause. The Amendment would enable a policy to be written which would provide, at the option of the 335 annuitant—of course, the terms would be adjusted accordingly—for an annuity which in the event of the annuitant's death would continue to be paid until 10 years' payments have been made.
We are not giving directions to the insurance company. The insurance company through whom the annuity may be taken out would adjust its terms according to the type of annuity that the person wants. We are simply giving a wider discretion. We are seeking to suit the legitimate desires of people who may feel that it is not worth while taking out a policy of this kind if in the event of their death, their estate gets hardly any of their money back. That is the only purpose. If the hon. Member considers the matter further he will see that we are not doing anything rash. We are simply extending the range of policies which will qualify.
§ Mr. Frederick Gough (Horsham)I might be able to help the Committee a little. I should declare my interest, which I have declared before, in that when I am not in the House I am engaged normally in the life insurance business. It is the normal practice, in practically all insured pension schemes, to give a five-year guarantee whether or not an annuitant lives for that time, so that the annuitant or his family will be guaranteed to receive back at least as much as he has paid into a contributory pension scheme during his life. There is no mystique about a five-year period. I should be glad to see a ten-year period brought in, but I should like it to be left to individuals to choose what they like.
On the actuarial side, I do not think that that enters into it. We are dealing mainly with the lives of males who retire at the age of 60 or 65 and females who retire at 60. In every case the expectation of life is more than five years, so the guarantee is a very small amount of loading on the premium.
§ Mr. J. T. PriceThe hon. Member has referred to my cursory remarks. I do not want to argue the matter scrappily across the Floor, for these are technical questions, but I do not accept the proposition he is now putting. Obviously, on the actuarial side, all pensions are based on average conditions of life. In dealing with an expectation of life of 11½ years for a man or 13½ years for a 336 woman, one is dealing with average conditions, but once the new factor of a stated term or a minimum number of years is introduced, one upsets the balance by going far beyond the notional point on the average. That was the point I was trying to make.
§ Mr. Ede (South Shields)I want to follow up the point made by my hon. Friend the Member for Westhoughton (Mr. J. T. Price). I spent a considerable number of hours during the early part of this year on the Teachers (Superannuation) Bill, when the question of the actuarial calculation kept us busy for a long time. These annuities, I understand, are calculated on what an insurance company expects will be the charge.
In another place, a most reverend prelate admitted that he went in for this kind of thing because death was certain; it was not a gamble because he was in on a certainty. That is the kind of gambler who upsets me, because he upsets the odds for everybody. There are people who die the day after an annuity becomes payable and the insurance company does very well out of them. Therefore, the company can be rather more generous to those people whom they would not have insured at all had they known how long they would live after the annuity became payable.
If this ten years certain is given to people and a number of them take advantage of it, what will happen is that they will have to pay a heavier premium than the people who do not ask for any certainty, who are genuine gamblers—the kind of people whom the Government are trying to encourage by their Premium Bonds—and the other people who are satisfied with five years. By increasing the time to ten years, some people will get additional Income Tax relief because they have gone in for this more expensive scheme. That means that the rest of us who are not in the scheme will have to make up the Income Tax that these people do not pay. As far as I know, the logic of that is sound so far, and when one—
§ Mr. EdeJust a moment. I am asking for help, and if the hon. Member can give it I shall gratefully receive it at the appropriate time. When gambling, it is as well to be logical even in selecting the nationality of the horses one is backing.
§ Mr. GoughThe right hon. Gentleman mentioned somebody getting a bigger Income Tax relief. We are confined here to limits. There is already a maximum limit which anyone can put by, so we need not be unduly worried about somebody getting away with more Income Tax relief. The right hon. Gentleman is right in saying that if a person opts to have a ten-year guarantee, generally for the benefit of his family—he gets no benefit himself, of course, when he is dead—he pays a higher premium and gets a smaller annuity. I should like the Bill to be sufficiently flexible for people to opt whether to "gamble", using the expression of the right hon. Gentleman, and say that they will live for a day or for thirty years, or to say whether they would like a guarantee for five or ten years.
§ 8.0 p.m.
§ Mr. EdeI am grateful to the hon. Gentleman, who seems to confirm the view which I have taken all along. The right hon. Gentleman the Financial Secretary accepted this proposed alteration from five years to ten years as if we had only to think of a number and would be only too grateful if we thought of a big one. I assure him that when this matter comes to be considered on the Report stage, he must expect that the Committee will be highly critical of any Amendments brought forward.
§ Mr. ArbuthnotMay I thank my right hon. Friend for the favourable reception he has given to our Amendment?
§ Mr. J. T. PriceBefore leaving this technical point, which I do not want to drag out any further, may I ask the right hon. Gentleman, and his hon. Friends who are obviously well qualified on these matters, if they can give me the name of any reputable insurance company which is now selling annuities payable at the age of 60 or 65 with a guarantee of ten years certain under the present practice?
§ Mr. H. BrookeThe reason I advised the Committee to accept this Amendment was that it offered a slightly wider choice to the potential saver whom we are seeking to encourage. The right hon. Gentleman the Member for South Shields (Mr. Ede) may be very good on his gambling, but he is not very good on his logic. He strongly suspects that certain people will gain more in tax 338 relief if this Amendment is accepted and that, therefore, other people will suffer a little.
As my hon. Friend the Member for Horsham (Mr. Gough) said, everybody who takes advantage of this scheme will be limited by the figures, to which we are shortly to come, as to the amount of his earnings on which he can claim tax relief. If he decides to use that amount of his earnings up to the maximum permitted, surely it is reasonable to allow him to choose what type of policy suits him best?
That is all we are doing here, and I earnestly assure the right hon. Gentleman that there is nothing sinister about this, and that we are not giving anybody an uncovenanted advantage against somebody else. We simply think that it is not unreasonable for people to take out policies which would give a guaranteed payment of the annuity for ten years in any circumstances instead of five years, if they wish to do so. If they wish to do so, however, they will have to pay higher premiums, but the amount on which they can claim tax relief will be strictly limited by the other provisions of the Bill. It is a simple matter—[HON. MEMBERS: "No."]—and there is nothing sinister in it.
Amendment agreed to.
§ Sir P. SpensI beg to move, in page 22, line 15, at the end to insert:
(e) notwithstanding anything in paragraph (b) of subsection (2) of this section, for part of the annuity payable to the individual to be capable of commutation if that part does not exceed two thousand pounds or one quarter of the total value of the annuity whichever is the less.This Amendment seeks to insert the right to commute a certain portion of the annuity not exceeding £2,000 or one quarter of the total value on the annuity, whichever is the less. I know that commutation on a scheme of this kind is probably not justified on actuarial grounds and on pure insurance theory. On the other hand, it is to be remembered that of the people for whose benefit this Clause has been put into the Bill the first of them will be people with very small incomes.When we look at the Millard Tucker Report we find there an estimate of the number of self-employed who will benefit by this Clause. This is given as 1,696,000, 339 of whom no fewer than 1,491,000 are persons with incomes of under £1,000 a year, and that only the balance have incomes of over that amount. The majority of pensionless employees must also be people with incomes of £1,000 a year or under, and those are the people who will benefit by this Clause.
It is almost impossible to think that they will be able to make provision on retirement for anything much more than their annuity. They will not be able to save money in order to buy a home for themselves. In practically all the vast number of the present sponsored schemes, and in the Civil Service scheme, there are provisions by which, if a person so desires, he can take some portion of his annuity in the form of a lump sum payment, which is constantly taken for the purpose of having something with which to provide a home for old age. It may not be a logical and proper insurance argument, but it is an extremely human argument, that I believe all these hundreds of thousands of people will want to be able to commute some portion of their annuity for a lump sum, and it is for this reason that I urge the matter on my right hon. Friend.
I am not very optimistic that I shall succeed on this occasion. However, as was said earlier in this debate, we are entering a completely new field here and, in time to come, we may be able to improve it—I hope we shall—from year to year. If it is impossible to take the risk of granting this benefit from the beginning, it is one for which I hope my right hon. Friend will realise there is a great demand, and that he will do his best to let us have it as soon as possible.
§ Mr. H. BrookeI have listened carefully to my right hon. and learned Friend, but I cannot advise the Committee to accept this Amendment. The reason why I have risen early is to make clear the position of the Government, and I certainly do not intend any discourtesy to any other hon. or right hon. Member who may wish to take part in the debate.
The history of the matter is that the Millard-Tucker Committee made a recommendation and fixed the maximum for the lump sum in their scheme, and the minority of the Committee took a different view. The Royal Commission 340 re-examined the matter and recommended a different lump sum, and the minority of the Committee again took another view. So it cannot be said that the Government have received unanimous advice from any quarter. Therefore, they have to make up their own mind, and we have brought forward this Clause which does not make provision for lump sums.
There are several reasons which have weighed with my right hon. Friend. One is that we have in front of us a number of recommendations of authoritative bodies regarding employees' pension schemes, on which the law is somewhat confused. My right hon. Friend has made it clear that he is not ready this year to take any action to clear up that confusion. Certainly the various recommendations in that respect will require attention, and at some stage proposals will have to be brought forward.
I need not weary the Committee with a description of the different types of employees' pensions schemes or the conditions under which lump sum payments are allowed in some cases and not in others. What weighed with my right hon. Friend was that he wished to keep an open mind about the whole question of employees' pensions schemes until he really approached it and grappled with it. If he were to admit lump sums here and now generally for the self-employed, he would, I feel, have been queering the pitch for the innings which he will have to play at a later stage when he comes to tackle the law relating to employees' pensions schemes. That was one reason, a substantial reason, why he wished to keep his hands free.
Furthermore, my right hon. Friend was aware of the seeming discrepancy in a system by which one can get tax relief on the premiums paid and then draw out a tax-free lump sum, even if it is only a limited amount, at a later stage. What he is particularly anxious to do by these proposals, and he is grateful for the general welcome which they have received, is to encourage saving by way of annuity provision for old age. If lump sums were to be permitted, that is a different kind of provision for old age, and the scheme might attract a number of people who were not really thinking of retiring but saw the attractiveness of getting tax relief on money which they 341 paid in from year to year in order afterwards to draw out a tax-free benefit.
The term "self-employed" covers a great range of people in trade on their own account as well as professional people and many other classes. My right hon. Friend specially wanted to help the people who are genuinely seeking to enter into contracts which will enable them to get the equivalent of pension payments when they retire. Moreover, if he were to admit lump sum payments into the scheme here and now he would actually be giving the self-employed more favourable treatment in this respect than is at present available to many of those who are in employees' pensions schemes. I have indicated that the law relating to employees' pensions schemes may not remain unchanged forever. Nevertheless, it would be a queer way of trying to give the self-employed people opportunities in respect of tax as good as those which many employed people already have, that being the main object of Part III of the Bill, if in certain respects yet more favourable treatment were to be given to the self-employed than is available to many of those in employees' pensions schemes.
Those are the reasons that my right hon. Friend had in mind. He was not taking any moral view for or against the lump sum, but what he asked me to put to the Committee in connection with this Amendment, and other Amendments to which we may come, is that the Government certainly do not regard these Clauses as likely to be, when they reach the Statute Book, like the law of the Medes and Persians, unalterable for all time. We think it most unlikely—I have been very frank and honest about this—that we shall in all respects get it right. The uncertainty about the future is indicated by the estimate that we have given that the Clauses will cost anything between £30 million and £50 million in loss of revenue. No hon. Member in the Committee can tell how attractive or unattractive the scheme will be.
In the circumstances, my right hon. Friend is anxious to get on the Statute Book quickly a simple scheme, which will work, for the benefit of the self-employed. If at a later stage we find that it needs improvement or, as was said by an hon. Gentleman opposite, embellishment, we can look at it in future years in the light of experience, but, for the 342 reasons which I have given, I would ask my hon. Friends not to press the Amendment, because the Government must be quite firm in resisting it.
§ 8.15 p.m.
§ Mr. Gordon WalkerThe right hon. and learned Member for Kensington, South (Sir P. Spens) moved the Amendment with his usual charm and skill. He has shown great skill about the whole matter the Order Paper contains some very pretty Amendments in his name.
I was glad to hear what the Financial Secretary said, because it would be a very great mistake to introduce the principle of lump sums into the scheme. Indeed, one of the great merits of subsection (2) is that lump sums are specifically and deliberately excluded.
Although I was glad to hear that part of the right hon. Gentleman's speech, I was a little sorry at the hint which I seemed to detect that he or his right hon. Friend might think of introducing lump sums at a later stage. Whether the right hon. Gentleman meant that when he talked about improvements and embellishments and it not being like the law of the Medes and Persians, I do not know. If the Government ever think of introducing tax-free lump sum payments into the scheme, I hope the right hon. Gentleman will turn up the speech which he has just made, with all its very powerful logical and moral arguments against tax-free lump sums.
The right hon. Gentleman said he did not want to be moral about it, but one can take a moral case. The Millard Tucker Committee was very weak on this point. All its arguments were against tax-free lump sums. It said that one could not defend them on any rational grounds and that it was wrong to have a tax-free payment out of an untaxed build up, that it would be monstrous to give the tax back twice over, and that it would open up all sorts of opportunities for tax evasion before we knew where we were.
I am all for improving the Clause, but my hon. Friends and I do not think that to introduce tax-free lump sums would be an improvement. People who want lump sums can still get them with tax concessions in respect of life insurance premiums. There is such provision for people who want it, and I am among 343 them. Many people prefer life insurance because it provides for their family. I should not mind seeing an increase in tax remission in that case. If they want to, people can get lump sums in that way, but to get complete tax remission on the premiums and then get a tax-free lump sum seems to be wrong and improper.
§ Mr. StevensWould the right hon. Gentleman be good enough to say whether he is in favour of abolishing the lump sum payments which are available by commutation of Civil Service pensions?
§ Mr. Gordon WalkerI was coming to that matter immediately, and I will deal with it now. I think that tax-free lump sums are altogether wrong, whether they are Civil Service or "top hat" schemes, or, indeed, schemes under the 1921 Act, though they are a little better because they are taxed. Nonetheless, where people have built up a genuine, honest expectation, it would be against the spirit of our legal system to destroy such expectation. Therefore, I would not interfere with, as the Millard Tucker Committee said, the existing built-up expectations of civil servants or anybody else.
However, I strongly agree with the minority report of the Royal Commission on the Taxation of Profits and Income which faces this quite clearly and says that it is wrong to have tax-free lump sums. What is wrong should not continue and from a certain date all new entrants, who know that they will not get the benefits, should not receive those sums; but that would not apply to those people who quite legally and properly under the existing system expect to receive them. In the main, I hope that the right hon. Gentleman will remember his own powerful argument and will not be misled into embellishments which will include the introduction of lump sum payments. If he should weaken in this, we shall read to him the arguments which he has developed so powerfully and so convincingly.
§ Mr. GoughI cannot allow the speech of the right hon. Member for Smethwick (Mr. Gordon Walker) to go unanswered, nor, for that matter, the first part of the speech of my right hon. Friend. I fully agree with the right hon. Gentleman that there might well be a case for reducing 344 the percentage of the lump sum, but the vast majority of people for whom the Clause caters are people in a small way of business, including, in my constituency, small farmers and shopkeepers. With taxation as it is today, this is their only way of saving.
It is not up to hon. and right hon. Members to be able to say that those people should not be able to put a very small nest egg on one side—and it is a small nest egg—when Civil Service and other pensioners can do so. I am prepared to follow my right hon. Friend in saying that this is a method of quickly putting on the Statute Book something which will provide pensions for this enormous number of our fellow human beings, but I should not like to say that at some future date they should not have something on the lines of what their fellow countrymen enjoy.
§ Mr. J. T. PriceFor once in a way I find myself almost in entire agreement with the Financial Secretary. He has put forward a completely logical and sound argument to show why the Treasury should not entertain further expansion of lump sum payments. He said that the law on these matters was confused. In some respects it is, but in broad outline it is quite clear. Under Section 32 of the Finance Act, 1921, employees' schemes privately administered provide for premiums paid by the employer and employee into the funds to be relieved of tax, as is the investment revenue of the accumulating fund.
It ought to be one of the primary objectives of the Committee to see that no developments in this wider sphere of insurance administered in contracts of indemnity of this kind do anything to undermine the status of the privately established employees' schemes which many of us have been jealously building up and which we regard as something of social value.
On the question of the state of the law and the conflict between these ideas, it is germane to the argument to point out that the way in which the privately administered schemes operate under their trustees permits the share-out of surpluses, if any, which the contributors to the fund have built up, or, conversely, for any losses, if any, to be shared out. Nevertheless, they control their own destiny. In the 345 majority of these schemes there is a provision which allows the employee, when he leaves the company's service to enter other employment, or for any other reason, to receive back his own contribution with interest over the period he has been paying contributions and, sometimes, a share of that paid by the employer as well.
In those circumstances provision is quite clear under the Finance Act, 1921, as subsequently amended, that all sums which are returned to the employee during his lifetime attract tax which is repayable to the Treasury at one-quarter of the standard rate, as the right hon. and learned Member for Kensington, South (Sir P. Spens) is well aware. Why should the Committee give any support to any proposition under which a person, having reached the maturity date of his contract for pension purposes, should be able to take all of the money tax-free? That is something which does not square with established practice where the money is repayable during the man's lifetime.
We should be extremely careful not to advance that proposition. The general scheme is not strongly resisted from this side of the Committee. We appreciate its benefits and justice, but we must do nothing which will undermine the position of the established schemes, which have been operating successfully and with great value to the nation since 1921. In saying that, I share the view of the Financial Secretary that the Committee would not be justified in encouraging lump sum payments as suggested in the Amendment.
§ Mr. ShepherdAs the hon. Member for Westhoughton (Mr. J. T. Price) said, in the case of the repayment of premiums and in certain cases of the commutation of trivial pensions the recipient has to pay tax at the standard rate of one-quarter of the cash value. I do not see what objection there can be in equity to causing those people who commute a restrictive part of their pensions to paying such a tax if they do. I do not feel that there would be any lack of equity if they paid the rate which is now charged on similar commutations.
It is true that a number of people at the end of their lives want relatively small sums of money to do something special, like buying a house, or moving from one house to another. There is nothing seriously wrong with the idea of allowing 346 a limited commutation, provided that the recipient pays at the scale which is already assessed for trivial pensions and the repayment of contributions.
§ Mr. J. T. PriceThe Amendment does not say that.
§ Mr. ShepherdI was not supporting the Amendment in its entirety. My right hon. Friends and the Opposition have apparently turned their minds firmly against this idea. There are very strong social reasons for allowing a certain measure of commutation, provided that the Revenue is safeguarded against people who do it merely to acquire capital. There is a very strong case for giving the individual in genuine circumstances the right to acquire at the end of his life a small sum of money to meat exceptional circumstances when he retires from his trade or profession, but that individual should be liable to the rate of tax which applies to the commutation of trivial pensions and repayments of contributions.
§ 8.30 p.m.
§ Mr. Gordon WalkerThe Opposition have set their minds against what is in the Amendment and the Millard Tucker proposals, namely, the payment of tax-free lump sums. There is a quite different case for the payment of a lump sum under the 1921 Act funds, where one quarter of the standard rate of Income Tax is paid. That sort of proposal is not before us, but we have not necessarily closed our mind to it. What we have absolutely closed our mind to are these tax-free lump sums, which seem to us absolutely wrong and improper.
§ Sir P. SpensIt is quite obvious that I cannot carry this Amendment any further tonight. In the circumstances, I beg to ask leave to withdraw the Amendment.
Amendment, by leave, withdrawn.
§ Mr. StevensI beg to move, in page 23, to leave out lines 25 to 29.
The words which the Amendment seeks to delete exclude from the benefit of the provisions for pensions for self-employed persons the remuneration of a controlling director of an investment company. I may be wrong, but as I read the words of subsection (7) it seemed to me that the draftsman had in mind the man who forms his private 347 estates into a limited company and tries to obtain certain tax advantages by so doing. I would think that to exclude such a person from the benefits of Part III is well justified.
I suggest, however, that the Clause as drawn goes far too wide. It refers to a controlling director as defined by Section 390 of the Income Tax Act, 1952. Reference to that section shows that a controlling director is defined as one of a body of directors who, between them, control more than 50 per cent. of the share capital of a company of which the director concerned owns 5 per cent. or more. That seems to me to be going far wider than is necessary to catch merely the sort of person at whom I believe this part of the Clause to be directed.
It may be that the proposal to omit lines 25 to 29 is going a little far the other way, but I am wondering whether my right hon. Friend would turn to Section 256 of the same Income Tax Act, where he will see that it provides for the shareholdings of relations of a director—whether wife, husband, brothers, sisters, children, uncles, aunts or nieces—and also nominees of directors, to be taken into account. I wonder whether we could not add some words at the end of the Clause to bring in all those people provided for by Section 256.
In that way we should exclude from benefit those one-man estate companies which the whole Committee would probably wish to exclude, while leaving in directors of perfectly bona fide investment companies against whom the Clause is not directed.
§ The Temporary Chairman (Mr. Malcolm MacPherson)I should have said that it would probably be convenient to the Committee if we discussed the next Amendment, in the name of the hon. Member for Stechford (Mr. Roy Jenkins), in page 23, line 25, to leave out from "of" to second "of" in line 27, and to insert "a company", together with the one which has just been moved.
§ Mr. Gordon WalkerYes, Mr. MacPherson. I want to address my remarks mainly to the next Amendment, which, as you say, it would be convenient to take with the one which has been moved.
348 The two Amendments are the exact opposite of each other, or perhaps even more than opposite, if that is possible. The purpose of the Amendment moved by the hon. Member for Langstone (Mr. Stevens) is to allow controlling directors of investment companies to have the benefit of the provisions of the Bill, they being excluded at the moment. The effect of my hon. Friend's Amendment, however, is to take out all controlling directors, not merely in investment companies. I am not only arguing against the proposal that we should let in the controlling directors of investment companies, but saying that we should go much further by excluding all controlling directors from the benefits proposed under this part of the Bill.
Controlling directors are creatures known to the law. They have been defined as a special category of person in the 1952 Income Tax Act, because from time to time it has been felt proper to exclude them, because of their special privileged position in certain respects, from benefits which others have received. My hon. Friend's Amendment merely carries further something which has been done for a very long time. Controlling directors are excluded from benefiting from the 1921 Finance Act funds about which my hon. Friend the Member for Westhoughton (Mr. J. T. Price) was speaking on the last Amendment. They are specifically excluded from all approved schemes under that Act and also under the 1947 Act—the "top hat" schemes and all others.
Over a very long period of time it has been clearly in the mind of Parliament that controlling directors should not receive the benefits of this sort of provision. There are two reasons for this. First, by definition they possess capital. Part of the definition of a controlling director is that he has to possess 5 per cent. of the capital of the concern of which he is a director. He is not in the same position as people who are without capital and need special help to enable them to save. A man with capital is obviously not in as difficult a position as the man without capital in that respect.
Secondly, and perhaps more important, has been the fact that he is, more than anyone else, in a position to influence his own remuneration, being controlling director of the company which pays him. 349 The Millard Tucker Committee, in paragraph 353 of its Report, recommended that controlling directors should be included and I suppose that that is why the Government have not excluded them from this part of the Bill, but it is interesting to see that, in making the recommendation that controlling directors should not be excluded from this part of the Bill dealing with the buying of annuities, the Committee goes on to say that
… in some cases they can personally influence the amount of their remuneration.Having taken note of this very powerful qualification and argument against admitting them, the Millard Tucker Report does not in any way argue against it. It does nothing whatever to explain why, although controlling directors are able to fix their own remuneration, they should none the less be accepted into these schemes. The Report just states the objection and leaves it at that.This is one of the points on which the logic of the Millard Tucker Report is not very strong. In the main, it is a magnificent Report, but here and there it has certain defects. Obviously, the Committee started with prejudices, and where these prejudices are strong, it in effect sticks to them against all the arguments, and this is one of the cases. The Committee was honest enough to put the arguments against its own conclusion, but it did not really put any arguments on the other side in favour of its conclusions.
Nevertheless, the Committee came to a conclusion, and, it is quite clear, came to that conclusion because the majority start with a prejudice in favour of including controlling directors. That is why there is a dissenting note written by the minority, which is particularly strong on this point. On the whole, it is against self-employed people coming in at all, and it is particularly strong against those with capital coming in, and controlling directors are, by legal definition, people with capital.
The reason why controlling directors of investment companies are kept out under the Bill—and I hope that the right hon. Gentleman will resist his hon. Friend's Amendment—is made quite clear in one of the Millard Tucker Committee's proposals, and it is because such companies own capital. They operate in capital, and they are not really companies in the sense that other companies are earning 350 money or income. There is really no quite clear distinction to be drawn between controlling directors in investment companies on the ground that they deal in capital, and that, therefore, a lot of possible tax evasion will open up if they are let in—there is no line that can clearly be drawn between controlling directors of investment companies and ordinary controlling directors, because the same arguments apply and there is only a difference of degree.
On the whole, the right hon. Gentleman is usually and quite correctly against drawing this sort of line, and he does not like the gaps which the drawing of such lines opens up. Here, he has no natural place at which to draw a line, except round the whole of controlling directors. He has, in fact, created a yawning gap between the controlling directors of investment companies and all others, and it would satisfy the very proper sense of propriety, logic and decency which he usually deploys in argument, much better if he drew the line clearly, neatly and cleanly round the whole class and category of controlling directors.
§ Mr. H. BrookeDuring our discussion on the last Amendment I had to point out that the Government were obliged to make up their own mind, because they had received three or four different kinds of advice from the bodies set up to study these difficult matters and to make recommendations. On this occasion the Government are in a more fortunate position. The Millard Tucker Committee made a recommendation and the right hon. and hon. Gentlemen on either side of the Committee are being "deviationists". I shall advise the Committee that we should stick to the main recommendation of the Millard Tucker Committeeߞ
§ Mr. Gordon WalkerThe right hon. Gentleman will be aware of the Minority Report of the Royal Commission. We are not deviationists. He has not had unanimous advice, but very conflicting advice.
§ Mr. BrookeIt is not such confused advice as on the last occasion. But I am not seeking to base my argument simply on that. I wish to show what would be the effect of accepting either of these Amendments.
I will take the second Amendment first. The right hon. Gentleman the Member 351 for Smethwick (Mr. Gordon Walker) has argued strongly for excluding controlling directors of companies. We must be realists in this matter, and keep in our minds that the controlling director of an ordinary company is very frequently someone who has previously been the owner or part-owner of the business which at some stage has been turned into a private limited company.
It would be unfair were we to exclude him from the relief simply because of that change. We have permitted the relief to the owner of a business which has not been incorporated. That is my reason. Again, it is not for a reason of morality or political ideology or anything like that, but what appears to be a commonsense reason, that we think we should distinguish between controlling directors of investment companies and other controlling directors.
My hon. Friend the Member for Lang-stone (Mr. Stevens) wished to delete this exclusion of controlling directors of investment companies, but I think that the Millard Tucker Committee was very sensible about this. It took the point that mere ownership of land or investments is not to be treated as a business and that, consequently, income derived from such property was not to qualify as earned income. It said that the same view must apply in the company field, also. It made this recommendation which is now embodied in the Bill.
My hon. Friend argued that this was unreasonable. I think he had in mind to persuade the Committee that there were many controlling directors of investment companies who were doing something more than managing their own family property. Perhaps he will go this far with me, that it would be unreasonable to include in these provisions the controlling director of an investment company which is simply a body into which the owners of property have turned themselves. If I understand my hon. Friend aright, he is arguing that there are investment companies of which there may be controlling directors, who are not really in the position of owners of the property, and who are managing it just as the directors may manage any other kind of company.
I and my advisers have thought hard about this, and I am bound to say that 352 we cannot visualise this situation arising. As my hon. Friend realised, the type of company affected is a company the directors of which, between them, have more than 50 per cent. of the voting rights, and it certainly appears to us as though virtually all of those companies would be companies in which the controlling directors, though individually they may not hold much more than 5 per cent. of the shares, are, nevertheless, managing what is really a family property.
8.45 p.m.
I do not want to seek to put to the Committee that the majority suggestion of the Millard Tucker Committee is going to operate precisely right in every case. One never gets the law absolutely right so as never to cause injustice, but, for the reasons I have given, I believe that if the second Amendment were adopted it would do injustice to a number of owners of businesses who have turned themselves into private limited com panies. I equally think that if the Amendment which has been moved were adopted, even in the modified form my hon. Friend suggested, it would let in a number of people who were simply managing family property.
For those reasons, I would advise the Committee that it would be best to leave the Clause as it stands. I do not think that we shall improve it by trying to make it more accurate or precise in either direction. I suggest that the majority report of the Millard Tucker Committee was very wise in indicating that all controlling directors of investment companies, but not of other companies, should be excluded from these provisions.
§ Mr. MitchisonI am afraid I cannot regard that answer as satisfactory with reference to the position of controlling directors generally. This is not a question of who comes into a scheme or who is kept out of it; it is a question of what is to be considered relevant earnings for the purposes of this Clause.
At present the line is drawn in this way between, on the one hand, the controlling director of an investment company and, on the other, a controlling director of any other company. I would say to the right hon. Gentleman, first, that he must know as well as I do that there are investment companies which are not investment companies in the eyes of the Income Tax Acts, but which, in 353 fact, carry on to a very considerable extent the business of investment and not much else.
I can think of cases recently in which companies formed with entirely different objects have turned themselves into—to take a general word—holding companies and it is really a nice question of financial convenience whether or not they have technically become investment companies. True enough, most of those companies are large and the existence of controlling directors in them is rather unlikely, but the trouble about drawing a distinction on this very uncertain line seems to be that people will try to convert their companies into whatever happens to suit them from the tax point of view. Therefore, I dislike in principle the drawing of a line on what seems to be, no doubt a recognisable, but a rather artificial distinction.
Then I come to the objection I have in principle to all this. The Millard Tucker Committee pointed out quite clearly that the trouble about controlling directors was that they could in effect control their own remuneration. What happens in one of these companies is that the controlling director can choose, and does choose, in the light of tax considerations how much he will get out of the company as a shareholder and how much he will get out of it as a controlling director; and when he gets his remuneration as a controlling director it may be in the form of a fixed annual payment or it may be, as the Millard Tucker Committee pointed out, wholly or partially in the form of some commission on earnings.
It is the amount which he gets, whether fixed or by way of commission on earnings—to put it quite bluntly, the amount which he chooses to get out of the company—which will determine his relevant earnings and, therefore, the extent to which he can enter a scheme of this sort on a qualifying premium. In cases where it suits a man who is a controlling director to go into a scheme of this sort, the Clause confers the benefit of a positive invitation to him to take out an inordinate proportion of his own interest in the company in the form of a commission or fixed remuneration.
I cannot see that that is a wise thing to do. I have looked at the relevant passage of the Millard Tucker Report and 354 I say frankly, with great respect to people who generally did an extremely good job, that I am very doubtful whether they considered this point with sufficient care. The paragraphs in the Report to which my right hon. Friend the Member for Smethwick (Mr. Gordon Walker) referred seemed to me to bear the marks of what I might call the post-midnight oil. That is the kind of oil which does not burn so clearly in the lamp, but enables one to get away to bed.
Whatever the history of the matter, I do not think that the Report is enough on which to found this decision. As a matter of principle, I say that in this case the right hon. Gentleman is choosing to draw a line at a highly artificial point, and that if he draws it there it will not be fair in itself and it will lead to shifting to whichever side of the line happens to suit the taxpayer. That is always an objection to an uncertain line. A far more certain line is provided by the words "controlling director, without qualification."
Secondly, on a question of principle, it will make a distinction between two things which in the case of a controlling director are very much a matter of his own choice—that is to say, what he gets out of the controlled company by way of dividends and what he gets out of it by way of remuneration. I do not believe that it is right to draw that sort of distinction and to invite people to add an increased artificiality to something apt to be a trifle artificial already—the remuneration of a controlling director paid by the company which he controls.
For all those reasons, I regard the Amendment put forward by my right hon. Friend as sounder in principle, better in practice and less likely to lead to confusion and collusion than the proposal which the Government have in mind.
§ Mr. GoughWould the hon. and learned Member tell me the difference between the controlling director who chooses his own salary or remuneration and the learned barrister who marks a brief at 400 guineas or 800 guineas?
§ Mr. MitchisonThe two people seem to be performing entirely different functions. I have never reached the eminent and somewhat peculiar position in which a barrister marks his own brief, nor have I heard of him doing so.
§ Mr. StevensI stand as much in awe of the wisdom of my hon. Friend the Financial Secretary as I do of the knowledge and experience of Sir James Tucker. As the wisdom of the one and the knowledge and experience of the other seem to be in harmony, and I appear to be the odd man out, I beg to ask leave to withdraw the Amendment.
Amendment, by leave, withdrawn.
§ Mr. Gordon WalkerI beg to move, in page 23, line 25, to leave out from "of" to second "of" in line 27 and to insert "a company".
I advice my right hon. And hon. Friends to divide on this Amendment.
Question put, That the words proposed to be left out stand part of the Clause:—
§ The Committee divided: Ayes 246, Noes 190.
357| Division No. 212.] | AYES | [8.56 p.m. |
| Agnew, Cmdr. P. G. | Fisher, Nigel | Lindsay, Hon. James (Devon, N.) |
| Altken, W. T. | Fleetwood-Hesketh, R. F. | Lindsay, Martin (Solihull) |
| Allan, R. A. (Paddington, S.) | Foster, John | Linstead, Sir H. N. |
| Alport, C. J. M. | Fraser, Sir Ian (M'cmbe & Lonsdale) | Lloyd, Maj. Sir Guy (Renfrew, E.) |
| Arbuthnot, John | Freeth, D. K. | Lloyd, Rt. Hon. Selwyn (Wirral) |
| Armstrong, C. W. | Garner-Evans, E. H. | Lloyd-George, Maj. Rt. Hon. G. |
| Ashton, H. | George, J. C. (Pollok) | Longden, Gilbert |
| Atkins, H. E. | Glover, D. | Low, Rt. Hon. A. R. W. |
| Balniel, Lord | Gomme-Duncan, Col. Sir Alan | Lucas, Sir Jocelyn (Portsmouth, S.) |
| Barber, Anthony | Gower, H. R. | Lucas, P. B. (Brentford & Chiswick) |
| Barlow, Sir John | Graham, Sir Fergus | Lucas-Tooth, Sir Hugh |
| Barter, John | Green, A. | Macdonald, Sir Peter |
| Baxter, Sir Beverley | Grimston, Hon. John (St. Albans) | McKibbin, A. J. |
| Bell, Philip (Bolton, E.) | Grimston, Sir Robert (Westbury) | Mackie, J. H. (Galloway) |
| Bell, Ronald (Bucks, S.) | Grosvenor, Lt.-Col. R. G. | Maclay, Rt. Hon. John |
| Bennett, F. M. (Torquay) | Hare, Rt. Hon. J. H. | Macleod, Rt. Hon. lain (Enfield, W.) |
| Bidgood, J. C. | Harris, Frederic (Croydon, N.W.) | MacLeod, John (Ross & Cromarty) |
| Biggs-Davison, J. A. | Harrison, A. B. C. (Maldon) | Macmillan,Rt.Hn.Harold(Bromley) |
| Birch, Rt. Hon. Nigel | Harrison, Col. J. H (Eye) | Macpherson, Niall (Dumfries) |
| Bishop, F. P. | Harvey, Air Cdre. A. V. (Macclesfd) | Madden, Martin |
| Black, C. W. | Harvey, John (Walthamstow, E.) | Maitland, Cdr. J. F. W. (Horncastle) |
| Body, R. F. | Harvie-Watt, Sir George | Maitland, Hon. Patrick (Lanark) |
| Boothby, Sir Robert | Hay, John | Markham, Major Sir Frank |
| Bossom, Sir Alfred | Heald, Rt. Hon Sir Lionel | Marlowe, A. A. H. |
| Bowen, E. R. (Cardigan) | Heath, Rt. Hon. E. R. G. | Marples, A. E. |
| Boyd-Carpenter, Rt. Hon. J. A. | Hicks-Beach, Maj. W. W. | Marshall, Douglas |
| Boyle, Sir Edward | Hill, Rt. Hon. Charles (Luton) | Mathew, R. |
| Bralne, B. R. | Hill, Mrs. E. (Wythenshawe) | Maude, Angus |
| Brooke, Rt. Hon. Henry | Hill, John (S. Norfolk) | Mawby, R. L. |
| Brooman-White, R. C. | Hinchingbrooke, Viscount | Maydon, Lt.-Comdr. S. L. C. |
| Bullus, Wing Commander E. E. | Hirst, Geoffrey | Medliciott, Sir Frank |
| Burden, F. F. A. | Holt, A. F. | Milligan, Rt. Hon. W. R. |
| Butcher, Sir Herbert | Hornby, R. P. | Monokton, Rt. Hon. Sir Walter |
| Butler,Rt.Hn.R.A.(Saffron Walden) | Hornsby-Smith, Miss M. P. | Morrison, John (Salisbury) |
| Campbell, Sir David | Horobin, Sir Ian | Mott-Radelyffe, C. E. |
| Carr, Robert | Horsbrugh, Rt. Hon. Dame Florence | Nabarro, G. D. N. |
| Cary, Sir Robert | Howard, John (Test) | Nairn, D. L. S. |
| Channon, H. | Hudson, Sir Austin (Lewiston), N.) | Neave, Airey |
| Chichester-Clark, R. | Hughes-Young, M. H. C. | Nicholson, Godfrey (Farnham) |
| Clarke, Brig. Terence (Portsmth.W.) | Hutchison, Sir Ian Clark(E'b'gh, W.) | Nicolson, N. (B'n'mth, E. & Chr'ch) |
| Conant, Maj. Sir Roger | Hyde, Montgomery | Nield, Basil (Chester) |
| Cooper, Sqn. Ldr. Albert | Hylton-Foster, Sir H. B. H. | Noble, Comdr. A. H. P. |
| Cordeaux, Lt.-Col. J. K. | Iremonger, T. L. | Nugent, G. R. H. |
| Corfield, Capt. F. V. | Irvine, Bryant Godman (Rye) | Oakshott, H. D. |
| Crouch, R. F. | Jenkins, Robert (Dulwich) | O'Neill, Hn, Phelim (Co. Antrim, N.) |
| Crowder, Sir John (Finchley) | Jennings, J. C. (Burton) | Ormsby-Gore, Hon. W. D. |
| Cunningham, Knox | Johnson, Dr. Donald (Carlisle) | Orr-Ewing, Charles Ian (Hendon, N.) |
| Currie, G. B. H. | Johnson, Eric (Blackley) | Osborne, C. |
| Dance, J. C. C. | Johnson, Howard (Kemptown) | Page, R. G. |
| Davidson, Viscountess | Jones, Rt. Hon. Aubrey (Hall Green) | Pannell, N. A. (Kirkdale) |
| D'Avigdor-Goldsmid, Sir Henry | Joseph, Sir Keith | Partridge, E. |
| Deedes, W. F. | Joynson-Hicks, Hon. Sir Lancelot | Peyton, J. W. W. |
| Dodds-Parker, A. D. | Kaherry, D. | Pickthorn, K. W. M. |
| Donaldson, Cmdr. C. E. McA. | Keegan, D. | Pilkington, Capt. R. A. |
| Doughty, C. J. A. | Kerby, Capt. H. B. | Pitman, I. J. |
| du Cann, E. D. L. | Kerr, H. W. | Pitt, Miss E. M. |
| Duncan, Capt. J. A. L. | Kershaw, J. A. | Pott, H. P. |
| Duthie, W. S. | Kimball, M. | Powell, J. Enoch |
| Eccles, Rt. Hon. Sir David | Kirk, P. M. | Profumo, J. D. |
| Eden, J. B. (Bournemouth, West) | Lagden, G. W. | Ramsden, J. E. |
| Elliot, Rt. Hon. W. E. | Lambert, Hon. C. | Rawlinson, Peter |
| Emmet, Hon. Mrs. Evelyn | Lancaster, Col. C. G. | Redmayne, M. |
| Errington, Sir Eric | Leather, E. H. C. | Rees-Davies, W. R. |
| Erroll, F. J. | Leburn, W. G. | Renton, D. L. M. |
| Farey-Jones, F. W. | Legge-Bourke Maj. E. A. H. | Rippon, A. G. F. |
| Fell, A. | Legh, Hon. Peter (Petersfield) | Roberts, Sir Peter (Heeley) |
| Finlay, Graeme | ||
| Robinson, sir Roland (Blackpool, S.) | Stoddart-Scott, Col.M. | Wakefield, Sir Wavell (St.M'lebone) |
| Robson-Brown, W. | Studholme, Sir Henry | Walker-Smith, D.C. |
| Rodgers, John (Sevenoaks) | summer, Sir Spenoer | Wall, Major Patrick |
| Roper, Sir Harold | Taylor, William (Bradford, N.) | Ward, Hon. George (Worcester) |
| Schofield, Lt.-Col. W. | Thompson, Kenneth (Walton) | Ward, Dame Irene (Tynemouth) |
| Scott-Miller, Cmdr. R. | Thompson,Lt.-Cdr.R.(Croydon,S.) | Waterhouse, Capt. Rt. Hon. C. |
| Shepherd, William | Thornton-Kemsley, C. N. | Watkinson, Rt. Hon. Harold |
| Simon, J. E. S. (Middlesbrough, W.) | Tiley, A. (Bradford, W.) | Whitelaw,W.S.I.(Penrith & Border) |
| Smithers, Peter (Winchester) | Tilney, John (Wavertree) | Williams, Paul (Sunderland, S.) |
| Smyth, Brig. Sir John (Norwood) | Touche, Sir Gordon | Williams, R. Dudley (Exeter) |
| Spearman, Sir Alexander | Turner, H. F. L. | Wills, G. (Bridgwater) |
| Speir, R. M. | Tweedsmuir, Lady | Woollam, John Victor |
| Spens, Rt. Hn. Sir P.(Kens'g'tn, S.) | Vane, W. M. F. | Yates, William (The Wrekin) |
| Stanley, Capt. Hon. Richard | Vaughan-Morgan, J. K. | |
| Stevens, Geoffrey | Vickers, Miss J. H. | TELLERS FOR THE AYES: |
| Steward, Sir William (Woolwich,W.) | Vosper, D. F. | Mr. Godber and Mr. Bryan |
| Stewart, Henderson (Fife, E.) | Wakefield, Edward (Derbyshire, W.) | |
| NOES | ||
| Ainsley, J. W. | Hamilton, W. W. | Paling, Rt. Hon. W. (Dearne Valley) |
| Albu, A. H. | ||
| Allen, Arthur (Bosworth) | Hannan, W. | Paling, Will T. (Dewsbury) |
| Allen, Scholefield (Crewe) | Hastings, S. | Palmer, A. M. F. |
| Anderson, Frank | Hayman, F. H. | Pargiter, G. A. |
| Awbery, S. S. | Healey, Denis | Parker, J. |
| Bacon, Miss Alice | Hobson, C. R. | Paton, John |
| Balfour, A. | Holman, P. | Peart, T. F. |
| Bence, C. R. (Dunbartonshire, E.) | Houghton, Douglas | Price, J. T. (Westhoughton) |
| Benn, Hn. Wedgwood (Bristol, S.E.) | Howell, Charles (Perry Barr) | Price, Philips (Gloucestershire, W.) |
| Benson, G. | Howell, Denis (All Saints) | Probert, A. R. |
| Bevan, Rt. Hon. A. (Ebbw Vale) | Hubbard, T. F. | Proctor, W. T. |
| Blackburn, F. | Hughes, Cledwyn (Anglesey) | Pryde, D. J. |
| Blenkinsop, A. | Hughes, Hector (Aberdeen, N.) | Randall, H. E. |
| Blyton, W. R. | Hynd, H. (Accrington) | Rankin, John |
| Boardman, H. | Irving, S. (Dartford) | Redhead, E. C. |
| Bottomley, Rt. Hon. A. G. | Isaacs, Rt. Hon. G. A. | Reid, William |
| Bowden, H. W. (Leicester, S.W.) | Janner, B. | Robens, Rt. Hon. A. |
| Bowles, F.G. | Jay, Rt. Hon. D. P. T. | Roberts, Goronwy (Caernarvon) |
| Boyd, T. C. | Jeger, George (Goole) | Robinson, Kenneth (St. Pancras, N.) |
| Braddock, Mrs. Elizabeth | Jeger, Mrs. Lena (Holbn & St.Pncs,S.) | Rogers, George (Kensington, N.) |
| Brockway, A. F. | Jenkins, Roy (Stechford) | Ross, William |
| Brown, Thomas (Ince) | Johnson, James (Rugby) | Shinwell, Rt. Hon. E. |
| Burton, Miss F. E. | Jones, Rt. Hon. A, Creech(Wakefield) | Short, E. W. |
| Butler, Herbert (Hackney, C.) | Jones, Elwyn (W. Ham S.) | Shurmer, P. L. E. |
| Callaghan, L. J. | Jones, Jack (Rotherham) | Skeffington, A. M. |
| Castle, Mrs. B. A. | Jones, J. Idwal (Wrexham) | Slater, J. (Sedgefield) |
| Chetwynd, G. R. | Jones, T. W. (Merioneth) | Snow, J. W. |
| Clunie, J. | Kenyon, C. | Sorensen, R. W. |
| Coldrick, W. | Key, Rt. Hon. C. W. | Stewart, Michael (Fulham) |
| Collick, P. H. (Birkenhead) | King, Dr. H. M. | Stones, W. (Consett) |
| Collins, V. J.(Shoreditch & Finsbury) | Lawson, G. M. | Strachey, Rt. Hon. J. |
| Corbet, Mrs. Freda | Ledger, R. J. | Stross, Dr. Barnett(Stoke-on-Trent.C.) |
| Cove, W. G. | Lee, Frederick (Newton) | Summerskill, Rt. Hon. E. |
| Craddock, George (Bradford, S.) | Lee, Miss Jennie (Cannock) | Sylvester, G. O. |
| Cronin, J. D. | Lever, Leslie (Ardwick) | Taylor, Bernard (Mansfield) |
| Crossman, R. H. S. | Lipton, Lt.-Col. M. | Taylor, John (West Lothian) |
| Cullen, Mrs. A. | Logan, D. G. | Thomas, George (Cardiff) |
| Dalton, Rt. Hon. H. | Mabon, Dr. J. Dickson | Thomas, Iorwerth (Rhondda, W.) |
| Darling, George (Hillsborough) | MacColl, J. E. | Thomson, George (Dundee, E.) |
| Davies, Stephen (Merthyr) | McGhee, H. G. | Thornton, E. |
| Deer, G. | Mclnnes, J. | Timmons, J. |
| de Freitas, Geoffrey | McKay, John (Wallsend) | Turner-Samuels, M. |
| Delargy, H. J. | Mahon, Simon | Usborne, H. C. |
| Dodds, N. N, | Mallalieu, E. L. (Brigg) | Viant, S. P. |
| Donnelly, D. L. | Mann, Mrs. Jean | Warbey, W. N. |
| Dugdale, Rt. Hn. John (W. Brmwch) | Marquand, Rt. Hon. H. A. | Weitzman, D. |
| Dye, S. | Mason, Roy | Wells, Percy (Faversham) |
| Ede, Rt. Hon. J. C. | Messer, Sir F. | Wells, William (Walsall, N.) |
| Edwards, Rt. Hon. Ness (Caerphilly) | Mitchison, G. R. | West, D. C. |
| Edwards, Robert (Bilston) | Moody, A. S. | Wheeldon, W. E. |
| Evans. Stanley (Wednesbury) | Morris, Percy (Swansea, W.) | White, Mrs. Eirene (E. Flint) |
| Fienburgh, W. | Morrison,Rt.Hn.Herbert(Lewis'm,S.) | White, Henry (Derbyshire, N.E.) |
| Finch, H. J. | Mort, D. L. | Wilcock, Group Capt. C. A. B. |
| Fletcher, Eric | Moss, R. | Wilkins, W. A. |
| Forman, J. C. | Moyle, A. | Williams, David (Neath) |
| Fraser, Thomas (Hamilton) | Mulley, F. W. | Williams, W. R. (Openshaw) |
| Gaitskell, Rt. Hon. H. T. N. | Neal, Harold (Bolsover) | Willis, Eustaee (Edinburgh, E.) |
| Gibson, C. W. | Noel-Baker, Francis (Swindon) | Wilson, Rt. Hon. Harold (Huyton) |
| Gordon Walker, Rt. Hon. P. C. | O'Brien, Sir Thomas | Winterbottom, Richard |
| Grey, C. F. | Oliver, G. H. | Woodburn, Rt. Hon. A. |
| Griffiths, David (Rother Valley) | Oswald, T. | Woof, R. E. |
| Griffiths, Rt. Hon. James (Llanelly) | Owen, W. J. | Younger, Rt. Hon. K. |
| Hale, Leslie | Padley, W. E. | |
| Hall, Rt. Hn. Glenvil (Colne Valley) | Paget, H. T. | TELLERS FOR THE NOES |
| Mr. Pearson and Mr. Holmes |
Question put and agreed to.
§ Motion made, and Question proposed, of the Bill.
358§ That the Clause, as amended, stand part
359§ Mr. GoughThere is only one small and rather technical point on which I will not keep the Committee for more than two minutes. It refers to the type of insurance contract which is dealt with under the Clause. I do not wish to press the matter in any way but merely wish to put the point to my right hon. Friend.
This is possibly the first Bill or Act of Parliament which has laid down that insurance companies—and it is the big insurance companies which will accept the contracts under the Clause—will undertake one particular type of contract, namely, an annuity. Would my right hon. Friend consider, not necessarily this year but perhaps in the future, whether he could extend that so that insurance companies would be freer to provide the different types of contracts which they now issue?
Life assurance companies and societies have for generations dealt more in life assurance than in annuities. It is perfectly true that there is a type of annuity which can be issued to cover the various contingencies dealt with under the Clause, namely, an annuity not only for the person himself but for his widow and, in certain circumstances, his dependants. That is a reversionary annuity. It is an obscure type of contract which is not often used.
The Clause rightly provides, with certain restrictions, for the widow in the event of the man himself dying long before he reaches the pension age. I submit that the type of insurance contract known as an endowment policy is very much better and cheaper than the type of annuity which, under this Clause, the insurance companies can issue. I would ask my right hon. Friend to consider the point, bearing in mind, as I do, that it must have the limitations for dealing with the capital sum, that it would be to the benefit of those who come under the Clause if they were allowed, in certain circumstances, to take out endowment insurances as well as annuities.
Question put and agreed to.
Clause, as amended, ordered to stand part of the Bill.