§ Annuities paid to persons persecuted by the Nazis by way of compensation for loss of or damage to life, limb, health, liberty, property, or economic prospects shall, in so far as they are expressed to be payable free from taxation in Germany, be deemed to be payments of such amounts as after deduction of the appropriate German taxation would leave the amounts actually payable and shall be eligible for double income tax relief accordingly:
§ Provided that no person's liability to tax shall be increased in consequence of this section.—[Sir H. Lucas-Tooth.]
§ Brought up, and read the First time.
§ 1.30 a.m.
§ Sir H. Lucas-Tooth (Hendon, South)I beg to move, That the Clause be read a Second time.
I should like to have acceded to the plea made by the right hon. Member for Huyton (Mr. H. Wilson), more especially as he is my constituent, but as a back bencher I would have rather less security than he has if I let the opportunity pass.
Mr. H. WilsonAs the hon. Member says, I am a constituent of his, even if he does not regularly get my vote. The appeal I made was not addressed to him, or to those who have moved new Clauses. I am aware of the importance attached to this matter, not least in 616 the area which the hon. Member represents, and it is a quite fair Clause for him to move. It was merely a question whether he would get more publicity for it at another time of the day. I was not expecting him to withdraw his new Clause.
§ Sir H. Lucas-ToothI am grateful to the right hon. Member for the courteous way in which he has dealt with my discourtesy in dealing with his plea.
The Clause relates to the compensation paid by the West German Government to the victims of Nazi oppression. The facts about the various forms of compensation which are paid by the Germans to such victims are somewhat complicated, and some fundamental principles of tax law are involved. I do not wish to weary the Committee in any way at this time, nor do I wish to over-simplify the issue. I must try to state the position fairly, and I hope that I can do so briefly.
In a number of cases the compensation which is paid takes the form of an annuity. Most annuities, if not all, are inadequate as compensation. I am not saying this in any emotional way, but it would be true to say that any money compensation in respect of the matters for which the compensation is by way of being made would be quite inadequate. No one who knows anything of the facts of individual cases can fail to appreciate that. These annuities are inadequate simply on a strict and legal basis as compensation for the damage in respect of which they are paid, and that fact is admitted by the German authorities. They have paid a smaller sum in compensation than one would have expected, in the form of an annuity, which is then expressly made tax-free by the laws of West Germany. Why they have chosen to proceed in this manner I do not know, and I do not think it would help the Committee to speculate about it.
Unfortunately, annuities are liable to Income Tax in this country. These annuities have been charged to tax, and tax has been levied upon them. That is quite correct as the law stands. in believe that we are the only country and the world which does levy a tax on these annuities; nevertheless, I admit that in accordance with the law as it stands the tax is being correctly levied.
617 In 1957 my hon. and learned Friend the Member for Northwich (Mr. J. Foster) moved a new Clause seeking to exempt these annuities from British Income Tax. He did so on the Report stage of the Finance Bill of that year, and the report of the debate can be found in Volume 573 of the OFFICIAL REPORT, starting at column 1007. The House negatived that Clause without a division on the advice of the then Financial Secretary to the Treasury, my hon. Friend the Member for Wolverhampton, South-West (Mr. Powell). The gist of his argument might be summarised in one sentence from his speech on that occasion:
The underlying principle here is that there must be parity of treatment for similar income received by those who are liable to tax in this country."—[OFFICIAL REPORT, 16th July, 1957; Vol. 573, c. 1014.]That is a perfectly sound doctrine and it was supported on that occasion by the hon. Member for Sowerby (Mr. Houghton). I agree that it would be difficult to free the pension of a refugee widow from British Income Tax and at the same time to continue to exact tax from the pension of a widow of a man who fought against the Nazis. We cannot get away from that argument. If once we infringe that principle we are opening the door very wide.The question we have to consider in this context is whether these annuities are similar to taxable pensions and annuities in this country. Incidentally, it is illegal to pay a tax-free annuity in the United Kingdom. The tax-free part of any such agreement would be ineffective. If these were ordinary pensions from the German Government, they would have been paid less tax in Germany. Had that been done, the ordinary principles of double Income Tax relief would have been applicable and the rate of tax falling on them here would have been either nothing or very little. But as a result of the present law, the relief which the Germans have given by freeing these pensioners from tax in Germany is taken from them in this country. Why should we take advantage of something done by the German Government for the benefit of these people?
The obvious remedy is to give double Income Tax relief, but we cannot do that because there is no double Income Tax. 618 This Clause proposes to adopt an old conveyancing device. It is true that in this country we cannot agree to pay a net annual sum, but we can legally agree to pay such a sum which after the deduction of Income Tax, will leave the required amount, which is what the Clause does. I understand that the appropriate amount of German income tax on these annuities would be at the rate of 25 per cent. if they were subject to tax in the ordinary way at 5s. in the £.
The Clause proposes that we should notionally add back to the annuity 5s. for every 15s. of the annuity. In other words, we should notionally add back one-third of the annuity. We should then assume that the German Government have taken that notional addition in German tax, and on that we should work a double Income Tax relief scheme. The result would be to leave the annuity more or less net in the hands of the annuitant.
That is not as complicated as it sounds. It has the advantage that it does not infringe the principle which has hitherto, rightly, prevented justice from being done. I do not for a moment suppose that a Clause of this kind will be watertight and adequate to suit the Treasury's needs, but I hope that as a result of the debate the House of Commons will indicate that it approves the principle of the Clause. If it did that, it would then be open to the Government to take the necessary steps to bring forward an Order, which is the ordinary way of making changes in the law dealing with double Income Tax relief, and that Order could be discussed and negotiated with the German authorities.
I very much hope that my right hon. Friend or my hon. Friend—whoever replies to the debate—will indicate that he agrees with this approach in principle and that, as a result of the debate, he will take the necessary action to restore these sums which should not be taken from these victims and to see that justice is done in a way in which every other country in the world has seen fit to do it.
§ The Temporary Chairman (Sir Norman Hulbert)I understand that the Committee will discuss, with this new Clause, the new Clause in the name of the hon. 619 Member for Orkney and Shetland (Mr. Grimond)—" Exemption from taxation of payments of compensation to victims of Nazi oppression"—and that in the name of the hon. Member for Dewsbury (Mr. Ginsburg)-" Limitation of taxation of payments of compensation to victims of Nazi oppression."
§ Mr. GrimondWe can, fortunately, save a good deal of time in the discussion by referring to the debate which the hon. Member for Hendon, South (Sir H. Lucas-Tooth) mentioned, the debate of 1957. In the course of his reply to that debate, the hon. Member for Wolverhampton, South-West (Mr. Powell) explained why the Treasury found it impossible to exempt the victims of Nazi persecution from tax because in so doing it would be putting them in a preferential position as against widows whose husbands had suffered at the hands of the Germans and who had clearly as good a claim. He also explained that there were several classes of these annuitants and that one class was in any case not liable for tax.
On that occasion the House—it was discussed in the House—was impressed by the arguments advanced both by the hon. Member for Wolverhampton, South-West and by the hon. Member for Sowerby (Mr. Houghton), but it seemed to me that the Treasury made it clear that it was most sympathetic to the position of these refugees.
It seemed to me, and obviously to many others, that the time had come to discuss the matter again and to see whether any way could be found of helping these people. For that reason I put down the new Clause which stands in my name and the names of my hon. Friends. I agree that it is substantially the same as that discussed in 1957 and that it may well be thought to be rather too wide. If that is the case and if the Government feel more sympathetic to the approach of the hon. Member for Hendon, South, I should be most happy to support his Clause. He has developed an argument which he advanced in the previous debate, based on the supposition that the annuities, at least in some cases, are paid on the assumption that they will not be taxed and have been reduced on that assumption, in spite of the fact that in this country they are 620 liable to tax. It was then mentioned—it is worth mentioning again—that in most countries they are not liable to tax.
1.45 a.m.
This matter was also considered in the debate, but it was then argued on behalf of the Government that the Treasury could not look at the circumstances in which the income arose. It had to take it as it came. I do not know whether the Treasury sticks to that position. If the Treasury is prepared to make some exception from that position, this would seem to be a way in which we could do something, which most hon. Members would want to do, to assist the unfortunate victims of the Nazis.
It was suggested with some truth that there is a certain capital element in these payments. Although it may be rather difficult to distinguish in all cases, in some cases this property should not be treated as income.
I shall quite understand if the Government say that my new Clause is too wide, but I should be very happy to think that the Treasury may be able to go at least some way to meet the general wishes of the Committee. The Government should give serious consideration to the line of thought advanced by the hon. Member for Hendon, South.
§ Sir Henry d'Avigdor-Goldsmid (Walsall, South)The hour is late, but it is not too late to do justice and the right thing. The points advanced by my hon. Friend the Member for Hendon, South (Sir H. Lucas-Tooth) and the hon. Member for Orkney and Shetland (Mr. Grimond) need not be repeated. However, I want to make it clear that these payments are made under an agreement of 1952 when the financial position of the German Government was far different from their position today. The Convention between the allied nations and the German Government required them to pay
adequate compensation to persons persecuted for their political convictions, race, faith or ideology…The German Government, in introducing the Bill in their own Parliament, stated that they were not able to pay full compensation. Consequently capital payments, as well as annuities, had to be severely restricted.621 Further, the German Government, when negotiating double taxation conventions, asked the countries concerned to refrain from taxing these compensation payment. The Governments of Austria, Denmark, France, Ireland, the Netherlands, Norway, Sweden, Switzerland and the United States of America did not hesitate to give their consent.
It may well be argued by the Treasury that there is no precedent for treating under double taxation agreement payments which do not suffer tax. I remind my hon. Friend the Financial Secretary of the Anglo-Swiss Convention, which exempts from United Kingdom tax
pensions, paid by, or out of funds created by, the Swiss Confederation or by any Swiss Canton to an individual in respect of services rendered to Switzerland in the discharge of governmental functions".The exemption is not dependent upon the pension being subject to tax in Switzerland.I hope that that is sufficient to convince my hon. Friend that, if he accepts the principle behind the Clause, he is not instituting a new canon in British taxation law.
Jews throughout the world realise that their continued existence as a nation depended perhaps more on this country than any other, and the stand taken by this country from the days of Hitler onwards is a thing that no Jewish person should forget.
The record should be kept clean. The effect of that act of generosity in affording asylum to very large numbers of refugees from Nazi oppression—and it was real generosity—and the effect of the courage and determination in 1940, are today being vitiated by what can only be described as the niggling attitude of the Treasury. We have an opportunity now, at virtually no cost to the Exchequer—or at a very small cost and one which, by its nature, cannot continue long, because the people in receipt of these annuities are, of necessity, old—of putting that record right. I hope that when he replies my hon. Friend will remember that if he falls in with the spirit of the new Clause, he will be living up to the tradition of the great days of 1940.
§ Mr. David Ginsburg (Dewsbury)In speaking in support of the new Clause standing in the names of myself and my 622 hon. and right hon. Friends I shall endeavour to be appropriately brief, and keep in with the spirit of the discussion that has taken place so far this morning. Nevertheless, this is a very serious and important topic, and a number of things need to be said.
This new Clause is not dissimilar to those that have already been moved or spoken to, but there are two points to which I should like to draw attention. My Clause seeks to restrict the relief to items that are specifically the subject of exemption from tax in Germany. There are compensation payments coming from Germany that are not subject to German tax relief, and it is no purpose of ours that such income payments should be relieved of Income Tax in this country. Further, it is suggested that a limit of £500 per annum should be considered, after which British Income Tax would have to be borne by such annuities.
The Committee is perhaps entitled to ask why this matter is being discussed at the present time. There are a number of important reasons. First of all, it is quite clear that there is considerable dissatisfaction with the decision which the Government made in 1957 not to exempt such payments from British Income Tax. Secondly, one very significant new factor has since developed, and that is the consistent and, one must concede, praiseworthy pressure put by the German Government on the British Government in an effort to modify Her Majesty's Government's policy. A third and not unimportant factor is that we are now at the conclusion of the World Refugee Year, which gives Her Majesty's Government an opportunity to make a gesture in the spirit of that occasion.
Finally, the Treasury is under new management as compared with 1957. Whatever our political disagreements with the Chancellor may be, he is respected as a fair-minded and humane man—
§ Viscount Hinchingbrooke (Dorset, South)Was not his predecessor?
§ Mr. GinsburgI was not making any attack on his predecessor. I was saying that whatever may be our political differences with the present Chancellor, he is respected as a very humane and fair-minded man. One hopes that in such a situation as this there will be 623 compassion from him because, basically, this issue is moral, rather than technical or financial.
As all Members recognise, the country has a fine record of giving asylum to refugees of all faiths, races and nationalities, and I am sure that no refugee would wish to escape his tax obligation to the country which has given him asylum and a home. On the other hand, my own reaction, and I think the reaction of many people in all walks of life, is that the continued decision of Her Majesty's Government to tax payments of this kind does not correspond with the principle of fair play and fair-mindedness which we always try to practise in these matters.
We are also entitled to consider whether the Revenue would be prejudiced by a decision of this kind. It is my belief—and I believe the Financial Secretary will confirm—that a concession in this matter would surely not prejudice the revenue position of the country. He and I have had some correspondence. He is not in a position to inform me of what the revenue loss would be if a concession were given because I think it is fair to say that the necessary statistics are not available. But I take comfort from the fact that if statistics are not available, that is a sign that the problem is statistically rather small. Indeed, it is true to say that there are probably about 5,000 annuitants at the most—and, as the hon. Member for Walsall, South (Sir H. d'Avigdor-Goldsmid) said, rather old people—who are involved.
I feel that the question is mainly a moral one. On the other hand, the Government have adduced a number of technical reasons for so far resisting an improvement in this problem. In particular, they argue that a concession in this field would undermine our tax structure by being unfair to other categories of income. That is an argument in terms of equity, and one is also entitled to say, in as uncontentious a way as possible, that not all the arguments of equity fall in the Government's direction.
I think the Financial Secretary will confirm that the capital payments which are made to victims of Nazi persecution are not subject to tax. On the other 624 hand, it is payments of annuities which are subject to tax. I would simply make the point that annuities have, in the main, been chosen by the poorest and oldest elements in the refugee population. So one is faced with the fact that the Government's decision to tax these payments has serious inequitable consequences, and I do not believe that that was the intention at the time.
The second consideration, which has already been mentioned, is that the Government are profiting at the expense of the German taxpayer, because it is the German Government who are forgoing their tax rights in this matter.
§ Sir H. Lucas-ToothNot at the expense of the German taxpayer but the German taxpayer's beneficiary, the victim.
§ Mr. GinsburgI take the point. However, it should be remembered that when these sums of compensation were negotiated in Germany between the German Government and the refugee organisations it was an assumption in those negotiations that these sums would be tax-free, and, although this is a matter which concerns a foreign country, it is arguable that had the parties to those negotiations realised that in this country alone tax would be levied, it is conceivable that a different level of compensation would have been arrived at.
2.0 a.m.
One final technical argument should also be adduced. The Government are pleading for consistency with our own tax structure, and the centre of the Government case up to now, and I hope I am not misrepresenting it, is the issue of the British war widow. They argue that it would be unfair to let the compensation payments to victims of Nazi persecution be tax free while the pension of the British war widow is taxed.
There is strong force in that argument, but one is also entitled to carry it a little further because it gets us into certain difficulties. Whereas one concedes that there is a parallel in suffering between these categories of people, it is not correct to say that there is a parallel between the British war widow and another group who are affected by this, namely, the victim of Nazi persecution 625 whose career was damaged and blighted. When the Government get to that point they proceed to say that the parallel of the person who had his career damaged and blighted is no longer the war widow but the person who has lost his job. While there is a parallel in suffering between the first two categories, there is no parallel in human suffering between the person whose career was ruined before the war and the person who, as a result of a take-over bid, lost his job and got compensation in terms of an annuity.
The matter of the war widow was last raised in 1957 and since then there have been certain changes. The rate of the war widow's pension has increased since the time the hon. Member for Wolverhampton, South-West (Mr. Enoch Powell) spoke on this matter, and in this Bill tax relief is being given by the Government to widows. One is entitled to point out that in the meantime there is no change in the financial position of refugees from Nazism, and the Government cannot do anything about that because the payments are coming from Germany.
I do not propose to say more about this now. I do not claim any author's pride so far as our new Clause is concerned. I would be quite happy, speaking for myself, with the Clause which has been so ably moved by the hon. Baronet, the Member for Hendon, South (Sir Hugh Lucas-Tooth); or alternatively, if we got some friendly assurance from the Government that they will look at the matter again and proceed perhaps by an administrative concession, although I realise there are difficulties there; Or if the Government were willing to try to resume negotiations with the German Government so that justice might be done to a small section of the community who, in all conscience, have suffered enough.
§ Mr. SkeetI had a lot of correspondence with the Financial Secretary on matters raised by a constituent two months ago and have appreciated his courtesy. Certain anomalies remain and I would like to read one extract from a constituent's letter:
I understand that not only is the pension liable to Income Tax but also it is regarded as unearned income. Moreover, the commission of eight per cent., which is paid for obtaining the arrears of this pension is also taxed at the same rate although this amount 626 of eight per cent. is not, in fact, received by the pensioner. I am informed that in nearly every other country (including the U.S.A.) no tax is levied on such payments.It is quite obvious in this case that unearned income allowance is not permitted to anybody who receives an annuity from the West German Government. In the United States there is consistency in the tax code for the simple reason that many annuitants are spared tax. We in the United Kingdom are not in this advantageous position.In a number of cases a taxpayer has the option of receiving a capital sum and if he does so under our law he is not liable to pay tax, yet in a case such as this if he exercises an option in favour of periodic payments, he is liable to tax. This naturally presupposes that the taxpayer is cognisant of his rights. But it is not customary for the Treasury to advise him in advance. The result is that an ill-advised choice may mean misery for the taxpayer and a windfall for the Treasury.
It was argued on a previous occasion that uniformity in the tax code was important. What matters was the form of payment and not the derivation of the funds. But surely every rule must admit of exceptions in exceptional circumstances. It seems to me that this is an outstanding case where the annuity was not earned in the normal course but at the price of a great deal of suffering. These losses were incurred not in peace, but in war. Our tax laws are riddled with anomalies. No harm would be done if we had occasionally a "rational inconsistency" which would make the fiscal system a little more amenable to the taxpayer.
§ Mr. JannerI am not anxious to detain the Committee but I hope that it will bear with me for a few moments if I say that it is quite inconceivable that any tax should be imposed at all on these annuities. In the exceptional circumstances in which these annuities are paid I cannot understand how they can be reasonably or morally associated with any ordinary question of taxation or relief from taxation. It is ridiculous to say that people, whether Jewish or non-Jewish, who for racial reasons suffered persecution should have whatever compensation is paid to them by those who were responsible for these crimes subjected to tax.
627 This compensation really amounts to the payment of a capital sum, but quite apart from and in spite of any legalistic arguments the position is that these victims passed through the most horrific experiences that can possibly be conceived, and this question bears no comparison with anything with which we deal in the course of the Finance Bill or other financial matters.
A man who has been the victim of these crimes is not in a position to obtain compensation for what happened to him and for all the losses he sustained. He was probably subject to losses which are quite unascertainable, and his family and everybody connected with him were probably murdered in his sight. How can we expect that man to believe that, while the whole world is prepared not to charge a tax on the payments, our country, which stands so high in the estimation of all reasonable human beings throughout the world, cannot find some formula which will enable us to do the same as the other nations do? I must say that I cannot for the life of me understand it.
I find it hard, too, to try to describe in anything like appropriate terms what the position really was. I ask hon. Members to recall the fact the House stood in silence here on an occasion unprecedented in the history of the House of Commons when those atrocities were being committed. That was not regarded as being technically incorrect—although I suppose that in fact it really was not in accordance with the rules of the House. So who for a moment can suggest that we in the House of Commons or this Committee have not the right to deviate—even if we call it a deviation—from the ordinary rules of taxation in order to cope with a position of this sort?
I do not speak theoretically on this matter. I know a good deal about it. I have dealt with questions of compensating victims for many years. I know them from my own practice. The hon. Member referred to people being ignorant of the fact that the compensation would be taxed if it was an annuity. I can assure him that not only is that the case, but they are astonished when they are called upon to pay the tax. Sometimes they are then placed in very con-considerable difficulty, because, having 628 relied on the fact that they were to receive this compensation, they entered into commitments. I could give instances—at least one instance of a person who was placed, and is placed, in a very serious position because, believing it was impossible for anyone to deduct tax from these sums, he entered into commitments which today are impossible for him to meet.
That may be that ignorance of the position is not in law permissible, but surely, in cases of this sort we cannot stand, and should not stand, on the letter of the law and extract from the moneys which are brought into this country, foreign currency, some portion—it is really a miserable portion—for the purpose of our own Treasury. The position has been put properly by my hon. Friend, that the amounts paid in respect of pensions are naturally being increased, but these amounts are not being and have not been increased. I cannot believe that any person who is receiving some kind of compensation annuity in this country would find it in his heart to utilise the argument that a concession made to the victims of persecution should be stopped because he himself is not getting an annuity free of tax.
I hope that the expressions of sympathy which, I am sure, will come from the Treasury, will be accompanied by something more—by the realisation that we can follow in the footsteps of the rest of the world by not exacting this tax and thus continue to set an example instead of being behind world opinion.
§ 2.15 a.m.
§ Mr. HoughtonI am sure that the whole Committee will approach this matter with the utmost sympathy and the Committee will wish to be fair and more than fair, generous, to those who suffered grievously in the persecutions of the Nazi régime.
Reference has been made to the debate held on 16th July,. 1957, when I followed the hon. Member for Wolverhampton, South-West (Mr. Powell), who was then the Financial Secretary. I approved of his fiscal policy in the matter of taxation of annuities of this and similar kinds, a point of view which was not well received, to say the least, in some quarters of the Committee, including some of my hon. Friends. But 629 the proposal made in 1957 by the hon. and learned Member for Northwich (Mr. J. Foster) was very different from that made now and moved so ably and agreeably by the hon. Member for Hendon, South (Sir H. Lucas-Tooth).
In 1957, the proposal was to exempt all the payments from British Income Tax and Surtax and vacate any assessments made on them and make repayments of tax paid where that had been done. The proposal now before the Committee would gross up all these annuity payments by reference to the rate of German tax and then regard them as having or being eligible for double taxation relief. That is a most interesting proposal and would not conflict with the general principles of taxation which were involved in the earlier proposal.
I have some questions to put to the Financial Secretary. In The Guardian of 24th June, 1959, there was an article written by its legal correspondent. It was entitled.
Nazi victims hope for British change of heartand it said:An attempt to ensure that the victims of Nazi persecution now living in Britain receive their compensation from the Federal German Republic free of tax is to be made next month.When the British and German revenue authorities meet to consider the provisions of the existing Anglo-German double taxation convention, the Germans will propose an amendment to this effect. At present all annuities paid to these refugees in Britain are subject to United Kingdom tax.The article went on to say:It has been suggested privately to the German authorities that Germany should introduce legislation which would increase the amount of annuities to refugees in Britain proportionate to the amount of tax levied by the British revenue. The German Government has replied that this is neither administratively possible nor politically feasible.Following that article, there was a leading article in The Guardian in similar strain on 11th August, 1959, apparently anticipating that some negotiations then in progress would bring about a change in the situation.Then I noticed after our debate in 1957 a most interesting article in the Accountant of 29th March, 1958, on the taxation of German pensions. That raised some interesting points under the existing double taxation agreement with 630 the Federal Republic of Germany of 1955, Statutory Instrument, No. 1203.
Article IX (1) of that Convention provided that
Remuneration, including pensions, paid, in respect of present or past services or work, out of public funds of one of the Contracting Parties shall be exempt from tax in the territory of the other Contracting Party, unless the individual concerned is a national of that other Party without being also a national of the first-mentioned Party.This article suggested that by that provision non-British subjects, including Stateless persons, in this country receiving annuities from Germany should be exempt from United Kingdom taxation under Article IX (1) of the 1955 Convention. It also went on to say:Although in many cases these victims of Nazi persecution have since taken British nationality that of itself does not relieve them of German nationality and therefore those who are British subjects and who retain their German nationality would similarly be covered by the Article of the 1955 Convention,which I have mentioned.That left only one point of possible dispute, which was which annuities were being
…paid in respect of present or past services or work out of public funds of one of the Contracting Parties…Whether that covered only pensioners of the West German Government, or whether all persons who were getting compensation for past services or work would be covered because the annuities were being paid out of the funds of the Federal Republic, were questions raised in the article.I am sure that the Committee would be glad to know what all this amounts to. I am sure that hon. Members must have studied this, and in particular that the Committee would wish to know whether there was anything in this report of pending discussions on a new convention, and, if so, what has been the result and what have been the exchanges between Her Majesty's Government and the Government of the Federal German Republic. This seems now to have passed out of the field of the simple issue of tax at normal rates and exemption from United Kingdom Income Tax. It has gone into the field of some mutual adjustment or agreement between the Governments concerned.
631 I realise, of course, that what I am now raising—reference to certain types of annuities under the Convention of 1955—does not cover the whole field of these annuities. The hon. Member for Wolverhampton, South-West described to the Committee in 1957 the four different categories of annuities being received by the victims in this country of Nazi persecution. He made it very clear in the debate on 16th July, 1957, that persons who have suffered injury to body or health and who are receiving annuities to compensate them for injuries to body or health receive them free of United Kingdom Income Tax.
So they are out, and yet I notice that they are in the new Clause, which surprises me. That refers to compensation for loss of or damage to life, limb, health, etc. If what we heard in July, 1957, is the true position—I have no reason to doubt it—then we can be comforted by the fact that annuities paid for that type of injury are outside the grasp of the tax gatherers in this country.
§ Sir H. Lucas-ToothI put the words in following some document I was referring to. I put them in because it would not necessarily be those directly concerned whom we should consider; it might be their dependants.
§ Mr. HoughtonI am coming to the question of dependants.
The second category of annuities referred to by the then Financial Secretary in July, 1957, were annuities for loss of pension rights. They come in a different class. The claim could scarcely be made for complete exemption from United Kingdom tax of annuities paid for loss of pension rights. Pensions are taxable in this country. Whether there should be some adjustment of the amount of tax collected from the net amount in the hands of the recipient, by reference to the tax position, is another matter, but I suggest that the new Clause is much more appropriate to the position of annuities for loss of pension rights than was the new Clause proposed by the hon. and learned Member for Northwich (Mr. J. Foster) in 1957.
I grant at once that pensions are treated as earned income, whereas annuities for the loss of pension rights probably are not. Although the then Financial Secretary said they would be subject to tax in 632 the same way as a normal pension, he added that this class of case had not actually been referred to the Inland Revenue as to their entitlement for earned income relief. I thought it was strange at the time, and it must be stranger still if nothing has been done in the meantime.
The next category consists of annuities to widows and relatives of those who, unhappily and grievously, lost their lives. This is where we come to the parallel with the British widows' pension. In passing, it must be remarked that a number of countries, if not all, which exempt these annuities from their Income Tax, at the same time exempt the pensions of war widows of their own nationals, whereas we do not. This is just an anomaly which confronts us, and we have to acknowledge it. Finally, there are annuity payments for loss of office or dismissal from employment.
I hope that the Financial Secretary can throw some light on the situation. It seems to be somewhat confused, and in some respects obscure. We are all uneasy about the position. I am sure that the Committee will wish for the most sympathetic reply from the Financial Secretary, and will welcome the fullest information he can give.
§ Sir E. BoyleI cannot help regretting that this group of Clauses is being discussed at this late hour, although I realise that that is nobody's fault. This is an important subject, and I am in a somewhat personal difficulty, in that by this hour of the day, at short range, one eye does not function at all and the other only erratically.
But I would like to say at the start of my remarks that this is an important subject—not only, as my hon. Friend the Member for Walsall, South (Sir H. d'Avigdor-Goldsmid) said, because the fact that this country stood alone in 1940 was of very great importance to the Jewish nation, but—and this is not so often remembered—because the Commonwealth, as we know it today, and the whole great association of nations forming it, could never have been created without the support Britain had from Jewish financiers in the seventeenth and eighteenth centuries.
The resources of the Treasury and the Bank of England in those days would not have been sufficient to get us through those wars which were so crucial to 633 Britain's history. Therefore, the Committee must carefully examine this important subject, in respect of which justice must be done.
This matter was discussed in 1957 and, in principle, I have not all that much to add tonight to what was said by my hon. Friend the Member for Wolverhampton, South-West (Mr. Powell) on that occasion. I would just say that the hon. Member for Dewsbury (Mr. Ginsburg) made some kind remarks about the present Treasury Ministers. We are coming to the first anniversary of the debate on the Hola Camp incidents, and, remembering that debate, I would not wish to compete with what was said in it by my hon. Friend the Member for Wolverhampton, South-West, in relation to the virtues attributed to Ministers.
2.30 a.m.
I think that we ought to remember that, however much sympathy may be felt for the victims of Nazi persecution, the recurrent payments of an income nature which they receive cannot honestly be exempt from Income Tax, either by statute or by some administrative concession, without creating serious anomalies. Monthly payments made in respect of physical injury or damage to health to the injured person are regarded as not liable to United Kingdom tax, but the payments to the dependants of people who have died. such as war widow's pensions and the pensions of widows generally, are liable to United Kingdom tax. I think that the United Kingdom war widow cannot be expected to accept the view that the position of the widow of a person who lost his life as a result of Nazi persecution differs in principle from her own.
The hon. Member for Sowerby (Mr. Houghton) asked about the negotiations on this subject last year. I will tell him all I know about it and give the hon. Member what information is in my possession. There were discussions last year about proposed amendments to the Double Taxation Agreement between the United Kingdom and Germany, and the German representatives suggested that there should be an amendment introduced under which Germany would retain the right to tax the pension payments, and the United Kingdom, recognising that right, would give up its right to tax. The idea was that Germany 634 would not exercise her right and the payments would in practice go free.
The representatives of the Inland Revenue refused to accept that provision on three grounds. The first was that it was wrong in principle to accept payments of that kind; secondly, that this question scarcely came within the scope of a double taxation agreement since there was really no question of double taxation involved; and, thirdly,—I put this frankly to the Committee—that here there is a constitutional point of substance.
Quite apart from the merits of the case, it would not be right by such means to circumvent a decision of the United Kingdom Parliament that the compensation should remain liable to United Kingdom tax. The last time we discussed this matter, in 1957, the House of Commons had taken a decision, and in my view the representatives of the Revenue were right to respect that decision when it came to those negotiations. I consider that a right constitutional point for the Revenue to have taken.
§ Mr. HoughtonParliament could assist the Revenue by putting that right.
§ Sir E. BoyleThe Committee is entitled to take a decision now. I am merely reporting what was done in 1959 and why.
The hon. Member was correct when he said that if the individual takes a lump sum, that is a capital receipt and not subject to tax. I think that there is a point of importance to remember, namely, that the annuity in these cases does not bear an actuarial equivalent to the lump sum, and that in some cases the annuity is considerably larger than the life annuity which could have been purchased with the lump sum. So, in many cases, it may well happen that the annuity, even after it has been taxed, is worth more than a life annuity which could have been bought, although the latter would be taxed only on so much as was not a return of capital.
I have considered these three Clauses. The hon. Member for Orkney and Shetland (Mr. Grimond) said that his was the 1957 Clause all over again, and on that point I do not think the Committee would wish to consider a different decision for the reasons which were explained in 1957. I do not think that 635 I will deal with the half-way house, as it were, of the hon. Member for Dewsbury, not out of disrespect to the hon. Member, but because I do not think that that is the most considered of the three Clauses.
The most important Clause was that moved by my hon. Friend the Member for Hendon South (Sir H. Lucas-Tooth) and praised by the hon. Member for Sowerby. Even though the hour is so late, I should like to consider it for a few minutes. Its object is to treat certain annuities received from the Federal German Government by victims of Nazi oppression as payments from which notional German tax has been deducted, and to provide for the notional German tax to rank for double taxation relief.
The hon. Member for Sowerby got it right when he said that the payments in question would be deemed to be "grossed" at the notional German rate, thus increasing the total income, but that the allowance of double taxation relief would ordinarily have the effect of exempting them from any liability to United Kingdom tax, or, alternatively, if the United Kingdom effective rate of tax were higher than the notional German rate, of limiting the United Kingdom tax to the difference between the two rates. The net result in most cases would be to give a measure of relief which would be more limited than exemption from United Kingdom tax of compensation payments to Nazi victims, which is proposed in the new Clause of the hon. Member for Orkney and Shetland.
I have considered this Clause very carefully, because my hon. Friend has obviously taken a good deal of trouble in devising it, and I realise that he and his hon. Friends feel that it is less objectionable in principle than complete exemption and represents a fair approach. I still feel, however, that it is open to the same fundamental objection that it involves giving what is in effect a special relief to a particular class of taxpayer.
My right hon. Friend and I have tried to consider this Clause as carefully as we could. It is quite true that under the present proposal the relief looks like a simple extension of an existing relief, but the trouble is that the conception which underlies this proposal is artificial, 636 because it involves deeming a United Kingdom resident to have paid German tax which, in fact, he has not paid and which is not chargeable. I accept that it can be argued that, if the Germans had awarded a greater gross sum and then imposed tax on it, the recipient would have received the same net amount and the United Kingdom would have had to give double taxation relief to the United Kingdom resident for the German tax. But, in practice, that is not necessarily true, because under the Anglo-German Double Taxation Agreement a United Kingdom resident receiving an annuity from German sources might well be entitled to exemption from German tax.
In any case, I am not sure how far that argument would carry us, because any taxation code—and the whole basis on which we have argued this question throughout is that we must have regard to the British tax code—must have regard to taxes as they are and not as they might have been if an overseas Government had acted differently. That is the difficulty about this Clause. It appears to be an extension of an existing relief, but it can be regarded as an existing relief only by the device of treating as paid something which in fact has not been paid.
I recognise that these must seem technical grounds, but it is on these grounds that I ask the Committee to reject the Clause. This is a matter which causes the Committee some disquiet. It is always a difficult position when, on the one hand, you may be creating an anomaly and a sense of injustice between one individual and another according to the tax code of our own country, but, on the other, I recognise that Nazi persecution is something very different, fortunately, from most things which the modern world has known. Weighing everything up, however, I can only recommend the Committee to reject the Clause, but I do so with regret, and I should like to end by congratulating my hon. Friend on the care which he has obviously taken and the great effort which he has made to devise a means of getting round this difficulty, even though I am bound to conclude that he has been unsuccessful.
§ Mr. JannerHas the hon. Gentleman taken any opportunity of consulting 637 with other members of the Commonwealth, the United States and other civilised nations, which have allowed these payments to be free of taxation, with a view to ascertaining how they found it consistent with their fiscal policies? That might help him at a later stage to agree to some arrangement by which the relief can be given.
§ Sir E. BoyleI can certainly give the hon. Gentleman the assurance that in all our future studies of this problem we will gain as much help as we can by considering the position of other countries, though we are up against a distinctly difficult problem. I do not rule out trying to gain greater knowledge of the way in which these matters are solved by other countries.
§ Mr. GinsburgI am sorry to press the Financial Secretary, but having advised the Committee to reject the Clause, he goes on to talk about future studies of the problem. What does he mean by that? Does he mean that the Government's mind is not entirely closed to some concession? Is he thinking in terms of further talks with the German Government?
§ Sir E. BoyleI cannot in any way go back on the recommendation which I made to the Committee about these Clauses this evening. After all, this matter has been considered over a number of years. Hon. Members, including the hon. Member for Dewsbury and my hon. Friend the Member for Willesden, East (Mr. Skeet), have written to me about it. I have no doubt that I shall receive further correspondence and perhaps further deputations on the subject in the years to come. It would be most presumptuous for anyone in my position standing at the Dispatch Box tonight to say that we have studied the subject as far as we ever mean to.
§ Mr. PowellDespite the references which have been made to arguments which it fell to me to put to the Committee three years ago and despite the way in which my hon. Friend the Financial Secretary went out of his way to pay a personal compliment to me, I am disappointed by my hon. Friend's conclusion.
We must recognise that the device proposed to the Committee by my hon. Friend the Member for Hendon, South 638 (Sir H. Lucas-Tooth) is a device. It is a device designed to bring about, without violence to our general rules of taxation, the result which I believe all hon. Members of the Committee desire and which I assume the Government desire.
I had hoped that it would have been felt that it was not necessary to look behind the assumptions underlying the device, but to accept it as a means of escaping from the difficulty. It is a means which I do not think would have been found offensive by those other categories of persons whose situation has so often come into question when considering this subject.
It is one of the qualities of which we often pride ourselves in this country that we are able to deal with difficulties by means of making assumptions—by devices of very much the kind my hon. Friend the Member for Hendon, South has proposed.
I press my hon. Friends to reconsider their decision on this, because this device—it is admittedly a device—sufficiently and justifiably holds water for us to be able to achieve our common purpose.
§ Mr. HoughtonI support the appeal made by the hon. Member for Wolverhampton, South-West (Mr. Powell). We know that in same of our affairs we treat something as having been paid or deemed to have been paid. The way in which we find ways and means of overcoming technical difficulties is the genius of our legislation and administration.
We were all rather surprised to learn that in our innocence on 16th July, 1957, by our formal act of negativing the Clause then moved we provided some constitutional reason which the Inland Revenue was able to use with all its force and majesty. We had no idea that we were doing anything so profoundly important constitutionally when Mr. Speaker put the new Clause and, without a Division, we negatived that new Clause.
We shall have to be more careful what we do in future, or we shall find that to the Executive or, indeed, lower down still, our actions are insuperable obstacles in the way of their doing sensible business with a foreign Power. I hope that the Financial Secretary can keep the 639 matter alive, and I warn him that we might ask for some information about the numbers of assessments existing under the various categories so that we can get closer to the problem. For example, we have not yet heard whether some of these annuities have been exempted under the Convention of 1955 or other escape clauses that may exist.
2.45 a.m.
It all needs a thorough survey before we can be satisfied to let the Financial Secretary throw up his hands here tonight and say that he has done his best and cannot do any more, but congratulates the hon. Member for Hendon, South (Sir H. Lucas-Tooth) on the way that he moved the new Clause. I must say that that seemed to be a gratuitous piece of butter plastered over the hon. Gentleman after having rejected his main purpose.
We are disappointed, and I hope that the Financial Secretary will realise that before we proceed further we must try to understand the implications of what we are about to do. There is a new Clause before the Committee. How are we to deal with it? Is Parliament, once again, to reach an unfavourable decision on a proposal Which the Inland Revenue will throw in with the kitchen sink when it has its further negotiations with the German Government?
§ Mr. GrimondI am not able to agree entirely with the constitutional argument of the hon. Member for Sowerby (Mr. Houghton) because I think that Parliament must 'be deemed to want the natural consequences of its acts. However, what I wanted to ask was this. The hon. Gentleman asked a question of the Financial Secretary as to whether the class of case that in 1957 had not been referred to the Inland Revenue has since been referred. Did he get an answer?
§ Mr. HoughtonNo, I did not.
§ Sir E. BoyleI cannot answer that question straight away this evening, but I shall do so as soon as possible.
§ Sir H. Lucas-ToothI would assure the hon. Member for Sowerby (Mr. Houghton) that I have been a Member of the House too long to be overwhelmed by butter, however much of it is thrown at me. I do, however, feel in 640 some difficulty about this. If I had thought it would serve a useful purpose I would have been willing to have gone into the Division Lobby against the Government. On the other hand, I think that a Division at this time of night would be undesirable and somewhat unreal.
I had appreciated, while my hon. Friend was speaking, the exact nature of the constitutional point put by the hon. Member, and I was wondering what was the best course to take in the circumstances. As I understand the position, in the discussions that took place with the German Government the point was made—and I think that this was the effect of my hon. Friend's speech—that the British Government were bound, to some extent at all events, by the decision taken by Parliament when a previous Clause was negatived without a Division.
I do not at all want that position to remain and be fortified. On the other hand, it appears to me that this evening, at any rate, anyone considering the debate would feel fairly sure that the opinion of this House of Parliament is strongly to the effect that something ought to be done. For that reason, I hope that as a result of this debate there may be further discussions, and in order to prevent any possibility of it being said that this House has taken a decision, Sir William, I beg to ask leave to withdraw the new Clause, leaving the impression as strongly as I can that the Committee is in favour of some action being taken.
§ Motion and Clause, by leave, withdrawn.