HC Deb 02 July 1957 vol 572 cc1032-49

Paragraph 7 of the Ninth Schedule to the Income Tax Act, 1952 (which defines the expenses allowable to the holder of an office or employment of profit assessable under Schedule E) shall have effect as if there were substituted for the said paragraph as at present enacted, the following—

"7. The holder of an office or employment of profit shall be entitled to deduct from the emoluments to be assessed in respect thereof all expenses reasonably incurred by him for the appropriate performance of his duties of that office or employment"—[Sir H. Butcher.]

Brought up, and read the First time.

Sir H. Butcher

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

The Clause is designed to revise a rule in the Schedule to the Finance Bill, which rule goes back to the year 1842, when Income Tax was almost negligible in its incidence. The rule is so archaic that the only means of transport to which it refers is the horse. The rule has been the subject of adverse comment in the High Court, the Court of Appeal and in the House of Lords on many occasions.

In paragraph 129 the Royal Commission on the Taxation of Income and Profits says: There can have been no part of the income tax code which has been so regularly the subject of unfavourable notice. This adverse comment is marshalled in paragraph 130 of the Report, and it is a majority recommendation that the old and worn-out words should be replaced by words which are identical with those in the Clause. In this connection I refer to paragraph 140 of that Report.

I hope that my right hon. Friend will not suggest that this will open the flood gates to excessive claims in respect of expenses. Indeed, he could hardly do so in view of the close reasoning of paragraphs 129 to 143, inclusive. Instead, I invite him to examine the lists of law cases which are referred to as footnotes on page 44, and to go through them one by one. The first case, Ricketts v. Colquhoun, is that of a barrister who incurred expenses in discharging his duties as Recorder of Portsmouth. Mr. Justice Rowlatt, who first tried the case, used the following words: This case raises a question of hardship; I may go further and say the position really is unreasonable. In giving judgment in the House of Lords, Lord Blanesburgh, in the same case, said: I regret this decision, but as the law stands it is inevitable. The next case is Blackwell v. Mills, heard in the High Court on 29th October, 1945. Do not let us think that this was a case of a prosperous business man trying to work an expenses racket; it was the case of a student engaged in a research laboratory, who was required to attend classes for a university degree. The learned judge said that the deductions that could be made were extremely limited.

Another case was Roskams v. Bennett in 1950. He was a district manager of an insurance company. Mr. Justice Danckwerts referred to the rule as A very narrow and strict rule, and it is one which undoubtedly causes a considerable amount of hardship when applied to particular cases. Judges dealing with particular cases have said so again and again. 10.45 p.m.

I should like the Committee to look as the case of Griffiths v. Mockler, in 1953, in which an Army officer was concerned and where the amount involved was only £11 7s. Mr. Justice Vaisey said: The words of the Statute are notoriously narrow in their application. A little later on in the same year was the case of Lomax v. Newton, which concerned a Territorial officer. Mr. Justice Vaisey, who also heard this case, referred to the rule in the following terms: Notoriously rigid, narrow and restricted in its operation. The words are indeed stringent and exacting, compliance with each and every one of them is obligatory if the benefit of the rule is to be claimed successfully. They are, to my mind, deceptive words in the sense that when examined they are found to come to nothing at all. The next case referred to, Collins v. Hore, in 1949, was that of a temporary civil servant, namely, an assistant technical engineer employed by the Admiralty. Mr. Justice Croom-Johnson then referred to The very strict words laid down in Rule 9. The same learned judge also came to the decision in the next case quoted, namely, Bolam v. Barlow, 1949. Again, this was no case of a wealthy business man, but of a humble employee of a water board. Mr. Justice Croom-Johnson then used the following words: I would like to repeat and emphasise what was said by Mr. Justice Rowlatt in Ricketts v. Colquhoun, namely, that this case raises a question of hardship. I may go further and say the position really is unreasonable. Mr. Justice Croom-Johnson went on to say: A great number of these cases have produced, in my judgment, extremely hard results. The next case of Newsom v. Robertson in 1952 was heard by Mr. Justice Danckwerts who categorically stated: The Rule is much more limited and severe as regards allowances of expenses than the rules in Schedule D assessments. With the closely reasoned arguments of the Majority Report of the Royal Commission and the comments of Her Majesty's judges extending over thirty-two years, it really should be unnecessary to bring forward further advocates for a revision, but there is a reference to one which I really feel I must not omit from my observations.

My right hon. Friend will be aware that there is a body known as the Association of H.M. Inspectors of Taxes which produces, for the better performance of their duties and to further the interests of their Association, a quarterly record. In this connection I would invite my right hon. Friend to refer to the issue of April, 1956. On pages 147–151 are some comments from an inspector of taxes who by some irony of fate was himself a victim of the arbitrary Rule 7. In the fifth line of his letter to his own professional journal he says: I have indeed myself, like Durbridge, run into the brick wall of paragraph 7, Schedule E, as I will explain later. The essence of my protest, however, is that its rigidity is only reserved for some, while to others it shows a positive elasticity. He then cites the case of his own daughter. He says: Another example of Schedule E arbitrary inequity. My daughter will shortly be leaving school to undertake a period of training on a farm before going to an agricultural college. Many of her school friends will at the same time start their nursing training. Both will have their pay expressed in terms of a gross figure from which a deduction will be made for board. Both will receive roughly the same cash amount. But my daughter, as an agricultural worker, will only be treated as receiving the net amount for tax purposes, while her friends the nurses will be assessed on the gross amount and pay tax. Let me conclude with the observations of this inspector, who produces in his letter one from his own tax office at Leeds of 12th March, 1953. He then says that this shows that the Special Commissioners are well aware that the Board of Inland Revenue is indulgent to some taxpayers while keeping to the strict letter of the law for others. In this connection he makes the following point: The Board knows it is in a position of enormous strength whenever it chooses to exercise it. To local government employees, civil servants, nurses and Ministers paragraph 7 is still paragraph 7 in all its strength. I believe the conclusion to be drawn from the examples I have given is that whether a taxpayer suffers assessment or not depends upon arbitrary Board decisions which themselves are based on expediency and not upon justice. As long as Schedule E rules were applied with unwavering legal rectitude, no moral issue was raised and no question of justice or injustice could arise; but the element of concession has now been introduced and now that equity is the determining factor it should be applied with all-round fairness.

The point I wish to make is this: under this rule the taxpayer is completely at the mercy of the Board of Inland Revenue, and the Treasury never lifts a finger to aid or assist him to secure his rights; although the Treasury knows, and has known for a long time, and every accountant knows and every inspector of taxes knows that this rule bears much more hardly on some than it does on others. The Board of Inland Revenue knows that as a result of the decision in Ricketts v. Colquhoun it is in an impregnable position and it is reluctant to see that position whittled away.

I ask the Committee to think of the speed with which the Treasury rushes to put right anything it thinks might be wrong with the tax law. Examine for a moment the speed with which it moved last year in the case of the Heelex Company and Universal Grinding Wheels. Yet this rule which I am endeavouring to replace by my Clause has been the subject matter of complaint through the course of many weary years.

I am not pleading on behalf of the wealthy man. Usually he makes his own arrangements and has his own experts to guide and advise him. Often he has his expenses chargeable through a company which pays tax under Schedule D which is much easier and much lighter. I am pleading on behalf of the man who wears out his overalls and his tools or who incurs expenses of a similar character in the discharge of his ordinary work.

It may be urged that by concession and after some discussion with the trade unions there may be a lump sum granted to workmen in industry, but that is a concession and could not be supported on the strict and narrow interpretation of the Rule.

This is not the first time that a plea on these lines has been made in this Committee. In 1948 the present Lord Waverley, himself a former Chancellor of the Exchequer and President of the Board of Inland Revenue, made an almost similar request. The time has come when we should correct the position of the ordinary taxpayer so that he may have the benefit of the recommendations of the Royal Commission, now two years old, namely, that there should be steps taken to bring the rule under which he suffers into line with the expenses rule applicable to a taxpayer who pays under Schedule D. I believe that to be the right and just course. If it is possible to use the words applicable under Schedule D, equally it should be possible to use them under Schedule E.

Mr. Stevens

I beg to second the Motion.

In doing so, I should like to lend the very strongest possible support to the plea which has just been made by my hon. Friend the Member for Holland with Boston (Sir H. Butcher). It seems to me to be not only intolerable but illogical and entirely unjust that there should be this great differentiation in the treatment of expenses under Schedule D and those under Schedule E. When the hon. Member for Sowerby (Mr. Houghton) earlier submitted a new Clause providing that professional subscriptions should, in all cases, be allowable for tax purposes, I think the Committee showed itself at its best, in the sense that the two sides came together. I was very pleased, as a Conservative, to add my name to the Labour Amendment, because it seemed to me to be reasonable and just.

My hon. Friend's new Clause, being the greater, includes, of course, the less, and perhaps I may give an indication of the absurdity which now arises. A solicitor who is in practice and who pays his subscription to tthe Law Society can charge that subscription for tax purposes. If the same solicitor is employed as a town clerk by a local authority he is assessed to tax under Schedule E and has to pay the whole of that subscription out of his taxed income. That seems to be an entirely indefensible anomaly.

I suppose the most notorious case of this kind is one which went to the Court of Appeal. It was that of a vicar who invited his bishop to preach in his church on a Sunday. After the service, he fed his bishop at the rectory with a glass—or perhaps two glasses—of sherry, and a bun. He sought to charge the cost of that sherry and that bun against his stipend, but his stipend, again, was assessed under Schedule E, not Schedule D, and the expenses were disallowed. Yet a business man who takes a customer, or a possible customer to the Savoy for lunch can charge the whole cost of that lunch—in my view, very properly—against expenses.

As my hon. Friend has said, at the moment it is not the employee who is benefited, but the employer. With the wider definition under Schedule E of expenses which are properly chargeable, it is the employee who is suffering, and the new Clause aims at putting right an anomaly, and bringing justice to a large number of people.

So often in this Committee, Amendments or new Clauses are put forward which might cause the Front Bench a considerable amount of worry and which would be very expensive, but I believe that the total cost of implementing the unanimous recommendation of the Royal Commission would be the sum of £4 million. It is true that £4 million is a considerable sum of money but, having regard—

Mr. Jay

Is the hon. Gentleman quite sure that these recommendations were unanimous? I thought that there was a different minority recommendation.

Mr. Stevens

I spoke without the book—I have it outside but not with me—but my strong impression is that that particular recommendation was unanimous, but I will accept correction—

Mr. Houghton

Paragraph 122, in page 393 of the Report says: In our view if the Schedule E expenses rule were relaxed the same problems which now beset Schedule D assessment would be reproduced in the case of Schedule E … This was the minority Report, expressing dissent from the majority recommendation.

Mr. Stevens

I am always very happy to co-operate with the hon. Member, and I am very grateful to him for his advice now. Nevertheless, I would have thought that it would be generally accepted that it is entirely wrong to have one rule for Schedule E expenses and another for Schedule D expenses—although I agree that there is room for argument whether the gap should be narrowed by being more generous with the Schedule E definition or more severe with the definition under Schedule D. The cost of implementing the recommendation, which I think will appeal to the vast majority of fair-minded people, would not be very large. It would bring justice to a great many people who feel very bitter about this. I hope that my hon. Friend will accept the new Clause.

11.0 p.m.

Mr. Cronin

The hon. Member for Holland with Boston (Sir H. Butcher) served a very useful purpose in submitting the new Clause, as did the hon. Member for Portsmouth, Langstone (Mr. Stevens) in supporting it. There can be no doubt that there are numerous anomalies which have a very unfair effect. One has been told about them so frequently that there is no doubt that something should be done.

As the hon. Member for Langstone pointed out, there is a new Clause on the Order Paper which says that if membership of a specified professional organisation was one of the conditions of employment, the annual subscription for that professional organisation should he deducted from the emoluments to be assessed for tax. That stands in the name of my hon. Friend the Member for Sowerby (Mr. Houghton), my name and the names of other hon. Members on both sides of the Committee. But it is very specific; the effect of it is clear-cut.

The new Clause moved by the hon. Member for Holland with Boston, on the other hand, would have a very wide and revolutionary effect on the whole of tax law. One has seriously to consider how extensive is the injustice involved to merit such radical treatment. Admittedly these cases are numerous, but are they numerous in comparison with the millions of people who pay tax? The hon. Member quoted several court cases, but these are all isolated cases which for various reasons have been argued in the courts. Is there any evidence that this injustice affects a substantial proportion of the total number of people who pay tax? There may be, but it does not seem to me that the case has been made out.

The hon. Member said that the taxpayer who is assessed under Schedule E is put at the mercy of the Board of Inland Revenue. I know that the officials of the Department of Inland Revenue have bad public relations; they are often regarded as rapacious, merciless people, but in practice the vast majority are very humane and sensible officials who try to be as helpful as possible.

Sir H. Butcher

I went out of my way to indicate that the officers of the Department were showing more leniency to the taxpayer than they should if they were strictly interpreting the case law laid down for them.

Mr. Cronin

I am glad that the hon. Member intervened, because it indicates that we are agreed that the officials of the Inland Revenue Department are very helpful people.

This injustice can be overcome, for instance, very simply by the employer paying the expenses necessarily incurred. It may be said that there is no reason why an employer should do this if he can get somebody else to do it, but the majority of professional people belong to an organisation which negotiates conditions for them, and where trade unions are involved, too, these matters can be negotiated. In the vast majority of cases these matters can be dealt with by the employer paying the expenses.

The hon. Member made a very strong point when he said that the Royal Commission on the Taxation of Profits and Income had recommended this step. In fact, his new Clause is couched in very nearly the same words as those used by the Royal Commission, but, as my hon. Friend, the Member for Battersea, North (Mr. Douglas Jay), pointed out, there is a very strong minority who are completely opposed to the views of the Royal Commission, and who compiled a memorandum of dissent. They are Messrs. Woodcock, Bullock and Kaldor—all people familiar with economics and trade union matters. The Royal Commission itself stated in its Report that the Board of Inland Revenue submitted evidence that the existing Rule is a fair one, as far as a general rule can be fair rule.

The only difference between the new Clause as drafted and the present law is the substitution of the word "reasonably" for "necessarily." The comparatively unfortunate taxpayers who are assessed under Schedule E have to prove that expenses proposed to be deducted are "wholly, necessarily and exclusively" expenses for their employment, whereas the people who are taxed under Schedule D have to prove only that they are "wholly and exclusively" incurred.

Will this substitution of the adverb "reasonably" really clarify the matter? "Necessarily" is an adverb which has a fairly clear-cut connotation, but "reasonably" is an adverb which varies enormously in its construction. There must be vast differences among members of the Committee here tonight on what constitutes something which is reasonable. How enormous would be the variations of judgment in the use of the words "reasonable" or "reasonably" if these cases came before the court. One can visualise a very large extension of the category of expenses allowed under Schedule E if the new Clause were accepted. There is already an enormous increase in the category of expenses under Schedule D, and with the case law which would multiply, this situation would become quite out of hand.

All of us know that under Schedule D there are some very wide anomalies. For example, it is apparently permissible for an industrialist to have a car which costs £8,000, and which conveys him very short distances, or it is permissible for an actress to buy a mink coat and to say it is a deductible expense, because she has to have one to maintain her prestige. There are these quite absurd anomalies already in Schedule D expense rules, and this new Clause would have the effect of grafting these on to Schedule E.

The hon. Member for Holland with Boston quoted numerous cases, even quoting Mr. Justice Rowlatt. I think Mr. Justice Rowlatt summed up the matter very succinctly when giving a judgment on the case in which expenses were claimed under Schedule E. He said that if such expenses were allowed "there would be no end to it"—and that sums up the situation.

I think the hon. Member has made a definite case here, and the whole crux of the matter is the different treatment of taxpayers who are assessed under Schedule D from those assessed under Schedule E. It would be more reasonable to attempt to modify the rules under which Schedule D is assessed, rather than those for Schedule E. These numerous anomalies are tolerated only because it is necessary that the industries of this country should be competitive with the industries of other countries where very similar rules are used. There seems to be quite a case for trying to arrange some international understanding to standardise expenses allowed under Schedule D.

I quote to the hon. Gentleman paragraph 143 of the Royal Commission's Report: In the course of our study of this very difficult problem we formed the impression that some part of the complaints about the unfairness of the Schedule E rule in relation to that of Schedule D was due to nothing more than a lack of liaison between those responsible for dealing with the respective sets of claims. The Royal Commission went on to say it would recommend that some sort of liaison unit should be set up by the Board of Inland Revenue in various parts of the country. I think that that would probably be a helpful preliminary step to meeting the hon. Gentleman's objections.

This new Clause is admirable in its intention, but it adds to the inequities and anomalies and economic distortions of the Schedule D rules for expenses, and I think that it would be detrimental to our economy, and would decrease the tax yield, and I think it is very doubtful whether it would substantially serve the cause of justice.

Sir Hugh Linstead (Putney)

At this late hour I shall be very brief. It would probably be sufficient to say that the whole of the arguments in favour of the new Clause of my hon. Friend the Member for Holland with Boston (Sir H. Butcher) are contained in Chapter 5 of the Royal Commission's Report, and then sit down. However, I feel I ought to go a little beyond that.

The hon. Gentleman the Member for Sowerby (Mr. Houghton) and the right hon. Gentleman the Member for Battersea, North (Mr. Jay) drew attention to the Minority Report of the Royal Commission. It is worth drawing attention to the fact that what the Minority Report said in paragraph 122 was that the change recommended by the Majority Report, which is the change sought by the new Clause, does not go nearly far enough to remove the difference between the two conceptions of income. In other words, even the Minority Report recognised the existence of the inequality between the assessment under Schedule D and the assessment under Schedule E, which this new Clause seeks to remedy.

I thought the hon. Gentleman the Member for Loughborough (Mr. Cronin) put an important question to the Committee when he asked whether those who today are assessed under Schedule E represent a really substantial proportion of those who are subject to the inequality between the two assessments? I am quite certain that the answer to that question is, "Yes" and that more and more today professional men such as architects, surveyors, engineers, let us say, are passing from the independent practitioner status into the employer status through employment by Government Departments and by the nationalised industries. Therefore, more and more are finding themselves subject to an assessment under Schedule E instead of, as independent practitioners, under Schedule D.

The main justification of the new Cause I am certain is to be found in various paragraphs of Chapter 5 of the Majority Report of the Royal Commission. For example, I quote paragraph 137 on page 46 of that Report: Yet, under the present rule, the Revenue is forced into taking what seems to us rather unreal distinctions between what an employer insists upon and what he does not. between what a person is obliged to do in the performance of his duty and what it is desirable that he should do in order to be able to perform his duty: and between current expenses of maintaining knowledge or skill for one post and capital expenses of acquiring improved knowledge or skill to quality for another post. 11.15 p.m.

In other words, at the moment the distinction largely rests upon what a man feels in his own bones is essential expenditure, in order that he may maintain his position and his knowledge as a professional man, and the much narrower conception of what his employer may lay down as a condition of employment. I should have thought that in a set of circumstances in which it is manifestly to the advantage of the country that in scientific and technical professions everybody should be encouraged to keep themselves at the top of professional knowledge, we should not go out of our way to prevent the employed professional man from taking every possible opportunity to keep himself in touch with advances in his science, by membership of professional associations, the purchase of the latest books and by subscribing to the latest periodicals. All this at the moment is prevented or discouraged by the present differentiation between assessments under the two Schedules.

This is not a new matter. It is felt strongly as an inequality by professional men. I remember taking a deputation to the Financial Secretary to the Treasury—not the hon. Member for Battersea, North—between 1945 and 1950. The Ministerial reply to that deputation began by saying that the whole of the Income Tax law is founded on inequality. That seems a very cheerful and happy principle on which to base taxation!

Without quoting any further from Chapter 5 of the Royal Commission's Report, which I am sure the Financial Secretary and the Economic Secretary know only too well, I suggest that there is an analogy here with the situation of the ministers of churches, which has already been discussed in the Committee. There is real need for examination by the Treasury of whether we cannot do something better than what we are doing at the moment to iron out this differentiation between the two Schedules. I very much hope that whoever replies for the Treasury will be able to say that the Government are really conscious of this inequality between employed men and independent professional men and that they will do their utmost, if not in this Bill then in the next Finance Bill, to find ways and means of ironing out these differences.

Mr. Powell

No one who has studied this problem of the allowance of expenses for tax in assessments under Schedules D and E can have failed to recognise the essential difference in the circumstances of an office or employment on the one hand, and a trade or profession on the other hand, which must have its effect upon the allowance of expenses. Certainly the Royal Commission quite plainly recognised that difference. The Commission referred to the fact that … there is an inherent difference between income from employment and income from the activity of the self-employed. In judging what is reasonably done in the appropriate performance of the duties of an employment it must always be of major importance to know what the employer requires by the contract, what is the prevailing practice in comparable employments and what provision the employer may himself make at his own expense for the employee's use. On the other hand, a person who is engaged in a trade is directing his own income-earning activities and is of necessity forced into the position of judging whether the expenditure is of advantage for his business. No one else can be qualified by similar knowledge of the actual facts and of the hazards of the particular enterprise.

Therefore, the Royal Commission did not disagree—and it says this quite frankly in paragraph 135 of the Report—with the Revenue's presentation of the problem in regard to expenses under the Schedule E rule, and I think it must be recognised that in the vast majority of the 18 million—or thereabouts—assessments made under Schedule E, the circumstances of the office or employment are not such that any difficulties arise, nor I think is there any hardship caused, by the operation of the Schedule E rule.

Where the difficulty does arise, and the Royal Commission pinpointed this very clearly, is because, as they stated in paragraph 135, … there are many offices and employments, the true obligations of which are not capable of being precisely defined. They went on to illustrate that, first by the case with which we have already become familiar during our discussions this week, namely, the minister of religion; and they then observed generally, what this debate also has brought out very clearly, that it is in the case of professional employments, or offices of a professional nature, that the difficulty arises. It was to that difficulty that the Royal Commission specifically directed its attention and its criticism.

So, we are here dealing with a comparatively small, but very important, sector of the assessments made under Schedule E; that sector where, if I may so describe it, the employment is of a professional nature.

The Royal Commission proposed a formula to meet that difficulty, or to attempt to meet it; it is the one which my hon. Friends have written into their proposed new Clause. But, even judged by the Royal Commission's own test, this formula would fail if it should become part of our tax law. Let me apply the Royal Commissions own test. They put the test in the form of a series of questions, which they posed for answer. Those answers ought to be given correctly with the aid of the formula, if it is satisfactory. The questions were these:— Are personal tools to be allowed for, if used in preference to those provided by the employer? Books additional to those so, provided? Overalls where their use is optional? A private car where alternative traveling facilities are provided free? Wife's or secretary's wages where the terms of employment do not require their assistance? These are the sort of questions which require to be answered by the aid of whatever formula is adopted. They are the sort of questions to which the Royal Commission requires an answer, and in its opinion, the proper answer to most, if not all, of those questions should be "No". But, if addressed to the formula proposed in this new Clause tonight, the answer in most, if not all, cases, would inevitably be "Yes". Therefore, on the test proposed by the Royal Commission itself, this Clause is far too wide. It would inevitably let in much which they themselves thought it right and proper to exclude.

The formula purports to assimilate the Schedule E rule to that for Schedule D. Yet in the rules for assessment under Schedule D, in Section 137 of the Income Tax Act, 1952, there is a whole list, lettered from (a) to (n), of specific exceptions. Not one of these has been imported into the new formula.

Finally, there is the point which the hon. Member for Loughborough (Mr. Cronin) made, namely, that this formula contains two purely subjective criteria; the words "reasonably" and "appropriate". The wording is: all expenses reasonably incurred for the appropriate performance of the duties of the office or employment". Such a formula would impose on the Revenue, whenever there was a claim, the administratively hopeless duty of arriving at a subjective judgment upon the applicability of those two terms.

I do not, therefore, believe that the Royal Commission although it correctly pin-pointed the area of difficulty and the nature of the difficulty, succeeded in formulating the solution. My right hon. Friend recognises, as I think in inevitable, not only that the present formula in the existing law has been widely criticised but that in some respects and in some professions it gives rise to what is anomalous. On the other hand, he has to face the fact, which I hope I have demonstrated on the basis of the wording before us, that so far no alternative formula has been devised which would not have results which no one would be prepared to defend.

My right hon. Friend's intention, therefore. is during the year to seek discussions with interested bodies and those representative of the types of profession which are particularly involved, as the debate has shown, in the problem, to see if there can be ascertained by that means any scope for amelioration of the present difficulties. In view of that assurance and that task which my right hon. Friend has set himself, I hope that my hon. Friend will feel that at this stage the proposed new Clause should be withdrawn.

Mr. Houghton

I am sure the Committee will welcome the Financial Secretary's statement. The Chancellor seems to be adding to his burden of consideration in the coming year, and we sincerely hope that he will get through it all. We shall look forward with interest to the result of his further reflections on this difficult problem in conjunction with the others which he has already undertaken to consider.

There is no doubt that there is a problem here, but I think that my hon. Friends and I would agree with the Financial Secretary that the Royal Commission has not found the answer. One wonders who can find the answer if it could not, but, still, the Chancellor is nothing if not optimistic and I have no doubt that he is setting out on this task with the buoyant hope that he will find a solution where others have failed.

There is no doubt that from the administrative point of view to have to apply a formula which refers to expenses reasonably incurred for the appropriate performance of the duties of the office is to open up a limitless range of argument and difficulty. One of the virtues of the rules under both Schedule E and Schedule D at present is that they require the expenditure to be wholly and exclusively incurred in something, one in the course of trade and the other in the performance of an office. To say that expenditure shall be admitted if reasonably incurred in the appropriate performance of an office seems to me to add to the difficulties of interpretation and application rather than to lessen them.

We agree that an attempt should be made to bring the Schedule D rule and the Schedule E rule more in harmony, though I think it is doubtful whether there can be, or even should be, an exact equation between the rules for expenditure incurred in trade and the rules for expenditure incurred in the performance of duties for an employer, for the reasons which the Financial Secretary quoted from the Royal Commission's Report. Cases of hardship have been settled in the courts. It is impossible to say how widespread the harmful effects of those judgments have been. Some of them were unusual and could not have very wide repercussions on Schedule E assessments generally.

11.30 p.m.

We must not, however, lose sight of the fact that when a person is working for an employer and incurring expenditure in the course of doing that job, whether wholly and exclusively or only reasonably, the employer has a responsibility towards the employee to cover expenditure properly incurred in the performance of his office. In many cases that is something which can be agreed between the employer and the employee as part of the conditions of service.

As the Financial Secretary said, many of the difficulties arise in connection with professional men in private practice, although I do not agree with the hon. Member for Putney (Sir H. Linstead) that nationalisation is necessarily transferring many people from Schedule D status to the provisions of Schedule E. After all, a professional man employed by a colliery company was assessed under Schedule E before nationalisation and has not changed the classification of his Income Tax assessment since. It is only when one goes from being in business on one's own account to an employment that the change from Schedule D to Schedule E takes place. However, the hour is late and this is a very complex subject offering a very wide area of discussion and possibly difference of opinion and the Financial Secretary has reported to the Committee the only reasonable decision appropriate to the hour and circumstances.

Sir L. Joynson-Hicks

As one of those who put his name to the new Clause, I want to express my appreciation to my right hon. Friend and my hon. Friend for the attitude they have adopted towards this problem. It is a very difficult problem and it is something for us to be able to appreciate that they recognise that there is a very unsatisfactory situation. I know that many professional bodies are exceedingly worried about it. My own organisation, the Law Society, is very worried indeed. I know that my hon. Friends can be assured that in the consultations they will seek, they will have the fullest co-operation from those bodies.

Sir E. Errington

At this hour of the night, I hesitate to spend very much time on this matter, but at the same time it affects a constituent of mine in the most frightening way and I ought to mention the case very shortly. The constituent I have in mind was blinded at the rocket range at Woomera and is now employed by the Royal Aeronautical Establishment at Farnborough. For his duties he requires a guide dog.

He considers that the guide dog, which is necessary for him to get about from one part of the big establishment to another, costs £50. If he happened to be assessed under Schedule D, the position would be that he would be entitled to an allowance in respect of that cost, but because he happens to be assessed under Schedule E, he is unable to get any allowance. I wrote about this matter to the Chancellor and I received a reply which obviously showed that the position had not been appreciated. The reason I call attention to this case is that it seems clearly to exemplify the problem that arises. I put down an Amendment dealing with the question of disablement, but I feel that, in the light of what has been said by the Financial Secretary, as the whole matter is to be reconsidered he will have regard to what I have said, as an example of the sort of problem that arises because of the difference between Schedules D and E.

Sir H. Butcher

In view of the extremely helpful reply given by my hon. Friend, I beg to ask leave to withdraw the Motion.

Motion, and Clause, by leave, withdrawn.