HC Deb 23 May 1962 vol 660 cc547-71

Question proposed, That the Clause stand part of the Bill.

Mr. John Morris (Aberavon)

Although I am in general agreement with the Clause, I wish to raise one or two points on how it has become part of this Measure. It must be treated as a special Forces Clause. Obviously, to get the necessary recruitment, special measures were needed, and I go a long way in supporting the Secretary of State for War, whose scheme it is, in his object of getting more recruits for the Army. The bargain had been made, services had been rendered and they had to be paid for in the form set out. I doubt, however, whether all possible care has been taken, and that whether everything has been done properly. I feel strongly that no unfairness should be shown as between one class of soldier and another and, as I shall seek to demonstrate, there has already been unfairness.

The scheme mentioned in the Clause was introduced on 19th July, 1961, and the present aim is to ensure that the bounty that has been paid to the men who have enlisted under that scheme will not be liable for Income Tax. The money has been paid out. I shall deal with the details in a moment, but the object of the scheme was to get Regular soldiers to re-enlist before April of this year. I think that it ran out at the end of April, 1962.

Where was the Parliamentary authority for not recouping tax from the money that has been paid out by way of bounty? We have a Clause introduced into this Bill, ex post facto, seeking to make that bounty, which has already been paid, not liable to tax. The tax may or may not have been collected—I understand that it has not been collected—and I want to know why there should be inserted in this Finance Bill, in May, 1962, a Clause seeking to give Parliamentary authority for the non-taxation of money already paid out by way of bounty to men who have taken advantage of the provisions of the scheme by re-enlisting before April of this year.

To begin with, there is nothing in the Clause about the scheme. I have tried as best I could to find out what is meant by "the scheme" referred to in the first line. I thought that there might have been a public document specifying the exact terms of this somewhat less than grandiose title of "a scheme". The only reference we have here is to …the scheme introduced on the nineteenth day of July, nineteen hundred and sixty-one… There has been no official publication setting out exactly what the scheme is. The only reference to it that I can find is in a statement made after Questions by the Secretary of State for War on 19th July, 1961. He was then making a statement on Regular Army recruitment, and in one short paragraph half way through that statement he referred to what he had done …to launch a drive to get as many soldiers as possible to remain in the Army at the end of their 'National Service or their current engagements. No document at all has been published. The only mention of it is, as I say, in one short paragraph in that statement to which I have referred. The Secretary of State for War said: To this end, I have decided to offer a bounty of £200 to Regular soldiers due to leave the Army before the end of June, 1963,"— This is the bounty and payment about which I am speaking with nine years' service or less, who extend their service by at least three years. This offer will be open as from today"— That was 19th July, 1961— until the end of April, 1962. Similarly, a bounty of £200 will be offered to National Service men now serving who from today enlist on a Regular engagement."—[OFFICIAL REPORT, 19th July, 1961; Vol. 644, c. 1244.]

Mr. Callaghan

I do not know whether my hon. Friend has noticed that there is no representative of the War Office present. He is putting a case to which certainly a Treasury Minister is not as well able to answer as would be a War Office Minister. I hope that my hon. Friend will pursue the matter until a representative of the War Office appears—someone who can give him the sort of answer he deserves.

Mr. Morris

I had not anticipated that there would not be a War Office representative here. However, being charitable by considering that the Clause might have been called earlier than expected, I had hoped that before I ended my remarks there would be someone here able to give me a satisfactory answer.

The scheme referred to in the quotation I have just read from the OFFICIAL REPORT—the only one I have found—appeared in that short paragraph of a speech made by the Secretary of State for War in July last year. I think that I have represented the scheme in a fair way by saying that it offered to pay a £200 bounty to people who took advantage of the offer from 19th July until the end of April, 1962. There is no reference at all to tax. I should have thought that the bounty—and this lends force to my argument about why there should be a specific Clause—would have been even more attractive had the Minister said that it would be tax free.

If the Secretary of State for War had intended at that time that it was to be a tax-free payment, why did he not make that fact perfectly clear? Indeed, it would have been an added advantage to his recruiting drive if he could have said, "I am not only giving you £200 but it will be tax free". Had all this been properly thought out by the Government I would have expected to hear the Secretary of State for War announcing much earlier that the bounty was to be a tax-free payment.

I have checked the Pay Warrant, the only other document which has any other reference to the Clause—Pay Warrant No. 621 of 21st July last year—which stated that a soldier who re-enlisted, re-engaged, extended or prolonged his Colour service would receive such bounty as might be specified at the time of the undertaking in a current scheme approved by the Army Council. There was no reference in that document to a tax relief of any kind. I have also checked the Queen's Regulations. I have the full volume comprising these regulations with me but I will not read it all. I failed to find any reference in it to the £200 being tax-free.

I had to wait for three more days before the first information appeared about it being tax free. The information came, strangely enough, in a Reply to a Question asked by my hon. Friend the Member for Barking (Mr. Driberg), who asked whether the bounty of £200 would be tax-free. In a Written Answer the Secretary of State for War said: That is the intention. Legislation will be introduced in due course. I presume that the Clause under discussion is the legislation referred to. Tax will not be charged on the bounty paid in the meantime."—[OFFICIAL REPORT, 24th July, 1961; Vol. 645, c. 15.] The only indication that has been given to hon. Members that this £200 bounty is tax-free was in reply to a Question asked by one of my hon. Friends— Tax will not be charged on the bounty paid in the meantime. What is the authority for that? What is the Parliamentary authority for the Secretary of State for War to sit like a sort of Mikado in the War Office and to say "I will have a bounty scheme. Everyone who avails himself of that scheme before the end of April, 1962, will get a bounty of £200 and it will be tax-free. Tax will not be charged on the bounty paid in the meantime."

9.0 p.m.

Why was the House not told on 19th July that the £200 was to be tax-free? Why should it have to be elicited by one of my hon. Friends? In the meantime, what was the Parliamentary authority for not charging tax on the bounty? I should have thought that was an important question. I should have thought it rather strange that money should be paid out in this casual way in accordance with a scheme drafted exceedingly casually and that the terms of the scheme were not embodied in a document or a statement.

We hope that by means of the Clause we can go some way to mitigate the effect of the "welshing" by the Government in connection with the Grigg Report. But it seems that another class of soldiers, the "Ever-readies", who do not seem to be covered by this Clause, will have their bounties taxed. On 27th November, 1961, the Secretary of State for War, on introducing the Army Reserve Bill, stated that the "Ever-readies'" £150 a year would be taxable, whereas when they were called up their gratuity of £50 would be tax-free. It seems strange that the Government should differentiate between one class of soldiers and another. Those who reenlist within the terms of the scheme of 19th July get their £200 tax-free, because of the retrospective effect of the legislation. The "Ever-readies", who perform a similar function, get £150 which is taxable and £50 tax-free. I should like, if possible, to be told by a representative of the War Office why there is this differentiation.

I should like to know what is the cost of this Clause. How many men are affected? Has the scheme referred to in the Clause proved fruitful? What type of recruits have been attracted by the scheme introduced by the Secretary of State on 19th July? Do they include any who would have become regular soldiers in any event? I am anxious to know, having paid out this money apparently without authority, whether we are getting value for that money.

I do not intend to go on any longer, but I hoped that somebody from the War Office would be here to reply to these remarks. It seems strange that we have here a scheme conceived in this most casual of casual ways, merely referred to in a brief paragraph in the statement made by the Secretary of State for War after Questions, and that that scheme should contain no reference at all to the fact that this bounty is tax-free. An hon. Friend of mine on this side of the Committee has to find this out five days later by a Written Question, and he is told that, and the Secretary of State for War takes it upon himself to say that, the tax will not be charged on the bounty paid in the meantime. Was the Treasury consulted about this? What was its view? Was this the view of the Law Officers of the Crown that there was no need for Parliamentary authority not to charge tax on this bounty?

I am very anxious indeed that we should have a large, proficient Regular Army, and I am very anxious indeed to do everything I can to assist recruiting, but is this the right way to do it? Is this the best way, by paying out these large sums of money without any apparent authority? I would have thought the only way this could be done properly would have been to have introduced the legislation forthwith after 19th July and then to have paid out the money. I may seem to be naive about this, but it seems strange to me that we can visualise a situation where the Secretary of State for War can conceive a scheme of this nature and take it upon himself to say, as he said on 24th July, tax would not be paid on the bounty in the meantime. I should like an explanation of this matter.

The Chief Secretary to the Treasury (Mr. Henry Brooke)

As formerly Minister for Welsh Affairs I am rather sorry that the hon. Member for Aberavon (Mr. Morris) should have spoken in that tone about welshing. He says the procedure in this matter has been as casual as could be. It has precisely followed the procedure operated by the Labour Government in 1946 and again in 1951. I can certainly answer his questions. The amount involved is about £100,000. The number is something over 3,000. There is no unique character about this. Bounties of this kind have always been free of tax, and I am quite sure that the hon. Member for Sowerby (Mr. Houghton) will confirm that extra-statutory concessions are not unknown when Parliament has been informed that the necessary legislation will be introduced.

Mr. Morris

The right hon. Gentleman has said that bounties of this nature have always been tax-free. With respect to the right hon. Gentleman, he is quite wrong in this. I gave the recent example of the "Ever-readies". Their bounty of £150 is taxable.

Mr. Brooke

That, of course, is not a bounty. The bounty is what is paid to the "Ever-readies" when they are actually called up for service. If the hon. Member cares to look into it further he will find that it is tax-free under existing legislation.

The position here is that my right hon. Friend the Secretary of State for War announced this scheme in July, 1961, and in his original announcement, which was, of course, fully discussed with the Treasury, he no doubt assumed that Parliament would be aware that, according to the precedents, bounties of this character were exempted from Income Tax. A Question was put to him by the hon. Member for Barking (Mr. Driberg) about this. Later, he made this specific statement, and in accordance with the statement, and pending the first opportunity of introducing the necessary legislation, tax has not in practice been charged on these bounties.

As to the precedents, the hon. Member will find that Section 30 of the Finance Act, 1946, exempted certain bounties and gratuities payable under a scheme—I stress that word—which was announced in Parliament on 15th April, 1946. That was superseded by a further scheme, and the bounties under the later scheme—the 1950 scheme—were exempted from Income Tax by Section 24 of the Finance Act, 1951. That is broadly the story of this matter.

I feel that, in raising the question, the hon. Gentleman does not want to cast any doubt as to whether these people should receive their bounties tax-free. I hope that that is accepted by all of us. In reply to his speech, I stress that we have been precisely following the precedents here and that, in accordance with the statement of July, tax has not been collected. As I have said, the amount of tax involved in the provisions of Clause 16 is about £100,000. I hope that that answers the points which the hon. Gentleman raised.

Mr. Callaghan

I am sorry to hold up the proceedings, but I am very dissatisfied with what has happened. It is a pity that the harmony of our proceedings so far should be disturbed, but I certainly expected to see a Minister from the War Office on the Government Front Bench to answer this question. I should like to ask the Chief Secretary why we have not had the benefit of a Minister from the War Office to deal with the case put by my hon. Friend the Member for Aberavon (Mr. Morris).

Mr. Brooke

Because it is a question of tax.

Mr. Callaghan

I am sorry, but if that is the only answer and the right hon. Gentleman relies on precedents, I, too, shall rely on precedents in this case. I do not know what the procedure has been in recent years—maybe the Government have become slipshod—but as long as I have any responsibility here I do not propose to allow them to get slipshod about the attendance of Ministers in the House.

I well remember in the past when I sat on the Government Front Bench that whenever there was a Clause in the Finance Bill affecting the interests of any Department other than that of the Board of Inland Revenue or the Customs and Excise, for which the Treasury Ministers responded, the Minister was always there to account for it. How do I remember it so well? It is because I had to come and do it myself, and I spent many weary hours sitting on the Government Front Bench waiting to answer questions put from the Opposition side of the House. I know that times change—

Dr. Alan Glyn (Clapham)

I did not notice represented on the Opposition Front Bench the Opposition spokesman for the War Office.

Mr. Callaghan

The hon. Gentleman is quite wrong. My hon. Friend the Member for Aberavon has special responsibilities for the War Office, and it is in that connection that he has raised this matter. [Interruption.] I do not know why the hon. Member neighs like a horse when I say that, but my hon. Friend has made a perfectly good case on this subject. If we are not to get slipshod about this matter, the Committee and the hon. Gentleman opposite ought to have some concern about the treatment of these issues. It is simply not sufficient to say that the Chief Secretary can come here and tell us the answers to all these questions. I believe that the former procedure was right. The Minister who is responsible for introducing the scheme should be here to reply to the debate on it and deal with it and answer any questions arising from it.

My hon. Friend asked a number of questions. The Chief Secretary has replied to some of them, especially on the financial side, giving the only replies that he could. For instance, he has told us what the cost is. But he has not accounted for the difference in treatment between the "Ever-readies" and the Regular soldiers. My hon. Friend pointed out—I have no doubt that he will take occasion to point it out again because I am not disposed to allow the Clause to go without some discussion on it in the absence of a Minister from the War Office—that the "Ever-readies" are receiving different treatment from that accorded to Regular soldiers. As I understood my hon. Friend, a Regular soldier will receive a bounty of £200, and if the Committee passes the Clause, as no doubt it will do in due course—because all of us want to see this relief granted—the Regular soldier will receive relief in respect of the whole amount. I am sure that is right and I do not disapprove of it.

9.15 p.m.

I hope this interval is being used by the Front Bench opposite to see where the representatives of the War Office are. In the meantime, I understand that the "Ever-readies" are receiving a similar bounty of £200 if they are called up, £50 of which is to be free of tax and the remaining £150 taxable.

Dr. Glyn rose—

Mr. Callaghan

I am sure that the hon. Gentleman aspires to be a Minister in the War Office, but he is not one yet, and I want to hear the Secretary of State or the Under-Secretary of State explaining the difference in treatment of the "Ever-readies" and the Regulars in this matter. What is the case for it?

If there were any case for relief from taxation I would hazard the view that the "Ever-ready" is more entitled to a tax-free bounty than is the Regular who signs on at the expiration of his term of service. I understand that the Regular will get his bounty if he signs on, but look at the difference between him and the "Ever-ready".

The Regular soldier is already in the Army. The whole tenor of his life revolves round the Army. Perhaps he is in billets or with his wife and family in married quarters. Certainly there is no disturbance to his life if he signs on again. He continues the same sort of existence that he had before. I think I am right in saying that. The Regular is to get the bounty tax-free.

The "Ever-ready", on the other hand, is a man taking responsibility upon himself to sever his connections with civilian life and go into the Army. He will have to break those civilian connections. He will be liable to a great many financial responsibilities. He will probably be a young married man, because it is from this type of man, in the late twenties and early thirties, from whom this group is to be drawn. He will have family responsibilities and might well be buying a house—or might have been buying a house had the Government not suspended the house mortgage scheme and raised the interest rates. That in itself has prevented many men who would become "Ever-readies" from buying their own homes.

But these "Ever-readies" will find that when they leave their civilian occupations and go into the Army they will not have the same sort of financial conditions. An "Ever-ready" in civilian life will probably get the average civilian earnings of £15 9s. 11d. a week. In the Army, he will not get that, certainly not as a private.

The Government have given an increase of 64 per cent. to privates as from 1st April last and intend to give a further 6.4 per cent. as from 1st April next, but they should, of course, under the terms of the bargain they made, have given the whole of the 12.8 per cent. as from 1st April last. The Grigg Committee envisaged a regular review of pay at two-yearly intervals and there is no doubt that the Government have broken their bargain to the Armed Forces. Fifty per cent. of the increase which the men should have had as from 1st April last is being deferred for twelve months in the interests of the pay pause.

I put it to the Committee, as I would have put it to the Secretary of State for War had he attended, or to the Under-Secretary of State for War if he had deigned to honour us with his presence, that this is asking rather too much of these young men. These "Ever-readies", who are called upon to break into their civilian life, who will very likely he called upon to accept much lower rates of pay in the Army than they got in civil life, will find that all their civilian liabilities will continue when they go into the Army just as they existed in civilian life, but for some mysterious reason which the Chief Secretary has certainly failed to explain to the Committee so far but which, no doubt, if the Secretary of State for War were to arrive he could explain, or if the Under-Secretary of State were to attend he could tell us, we have had no explanation at all up to the moment.

There is not the slightest doubt that the "Ever-readies" are being treated in a way which leaves them financially worse off than the Regular soldier who signs on. I think I have shown—and others of my hon. Friends will want to take this up—that if there is any relief from taxation to be given, it should be given to the "Ever-readies", not rather than to the Regulars but the same amount of relief as is being given to the Regulars. I am delighted that this relief is being given to the Regular soldier. I think it was a very sensible notion and, on the whole, I do not want, and my hon. Friend who raised the matter certainly would not want, to take objection to the fact that the Secretary of State for War on 21st July last anticipated the decision of the House.

I think that the Secretary of State for War was right to presume upon the decision of the House and to assume that we would be willing and agreeable, when the matter was properly presented to us in the course of the Finance Bill, to give relief to the Regular soldier in respect of this bounty. But although I think that the Secretary of State was right to assume that the Committee would be willing to give him this Clause, he has no right to presume on the good will of the Committee and to absent himself from it. This is what I am concerned about. I think that the tenor of my speech has shown quite clearly that I have no intention, until we get a better explanation, of letting the Committee depart from this Clause. We have cooperated very well in the course of this debate, and we shall continue to do so, but there is no reason why Ministers should get slipshod in their attendance. They should be here. They are not asked to attend over-much in this Committee. We have finished our debates in reasonable time, and it would be a very great pity if we were to find ourselves in a position in which we had to continue the debate for a very much longer period than we otherwise intended to do.

My hon. Friend had other questions to ask about this. He asked what was the authority for the relief of tax for the "Ever-readies". The Chief Secretary, in his hasty reply, did not tell us. I noticed how quickly the Chief Secretary got up. I do not know whether he was hoping to get the Committee away from this Clause quickly before we had noticed the absence of either the Secretary of State for War or his Under-Secretary. If that was his intention, we forestalled it.

I should like to repeat a question put by my hon. Friend which has not yet been answered. Was it in the last Finance Bill debate that the Chancellor, or the Financial Secretary—or the Secretary of State for War or the Under-Secretary of State if they came to the Committee in those days—asked the Committee for permission, which I am sure would have been given them, to relieve the "Ever-readies" of £50, and, if so, did they give an explanation to the Committee why it was only £50 they were asking for and not £100, or indeed, the whole amount? I believe, and I imagine that my hon. Friend who raised the issue would agree, that if the Committee were requested to give exemption to the "Ever-readies" in respect of the whole of their bounty there would be no objection that we could see from this side of the Committee to doing so. If that is so, we are certainly entitled to an explanation from the Secretary of State for War, when he deigns to visit the Committee, or from the Under-Secretary.

I know that the Secretary of State for War has many responsibilities, but we have two Ministers at the War Office, and I suppose that we have two Ministers there so that they can relieve each other when official duties prevent one of them from coming here. If they came, they would be able to explain to us why they do not believe that an "Ever-ready", with his civilian responsibilities, which would undoubtedly continue when he was called to serve, should be relieved of the total amount of tax which he is now called upon to pay. For the life of me, I cannot see why this should be so.

The Chief Secretary referred to arrangements in earlier days. I well remember that in the course of a recruiting drive in 1950, under the Labour Government when I was then serving in the Admiralty, we gave incentives to men to sign on. Those incentives were relieved of taxation and I think that my hon. Friends will probably agree that there was no reason why they should be taxed then, any more than there is now. We found great difficulty in those days in getting recruits. Perhaps it was because the men were war-weary. The war was only five years before and the fighting in Korea had broken out and it was very difficult indeed to get men to sign on. I am sure that we were right to relieve them of the whole of the taxation on the bounties which were paid to seven-year men in the Navy who signed on for a further twelve and the five-year men who signed on for a further seven years.

Is the Treasury now getting so mean that it will not relieve the "Ever-readies" of a similar liability because men are now more freely available, or does the Secretary of State for War just not care? Has the Under-Secretary nothing to tell us about it? What is the reason for the difference in the treatment of the men who were called up in 1950, at the time of Korea, and that of the men who are now being invited to and who are willingly agreeing to sign the "Ever-ready" terms of agreement? It would be the meanest thing on earth if the Treasury were to say that it is now easier to get men and therefore the terms which were offered in 1949 and 1950 do not now have to be offered. It would be mean, but in some ways it would be typical of a Government who have forestalled an increase due to soldiers, sailors and airmen, which was 12.8 per cent. but which has been reduced to 6.4 per cent.

We are entitled to answers to some of those questions and I hope that they have now been conveyed to the Secretary of State or to the Under-Secretary, because we would be enabled to proceed with much greater celerity if we had a statement from one of those responsible Ministers giving us the answers to the questions which my hon. Friend has put.

My hon. Friend recognises that we are in Committee and that his right to speak has not been exhausted. He is entitled to repeat his questions, if he wishes to do so, until he gets an answer, and I have no doubt that he will find it convenient to repeat his questions so that he can be satisfied, as one who takes a close interest in the affairs of the Armed Services. When he gets clear answers, the ripples will die away and we shall be able to proceed with the other Clauses in the same spirit which we have had on the previous fifteen.

Mr. Brooke

I must correct some of the mistakes made by the hon. Member for Cardiff, South-East (Mr. Callaghan), because he is evidently unable to distinguish between an annual bounty and a once-for-all payment. It is the once-for-all payment which should be free of tax. The annual bounties, whether to Territorials, "Ever-readies", or others, are taxable. That is the general rule.

9.30 p.m.

As I sought to explain, these once-for-all bounties, which are quite distinct from the £150 a year offered to a man who signs on as an "Ever-ready", would be taxable but for this Clause. That is why this Clause is introduced, and I trust that I carry the Committee with me in saying that we should exempt these once-for-all payments from tax.

So far as I am aware, there has never been any question of exempting from tax an annual bounty which is made payable to men who are willing to serve in the Territorials or one of the Reserves. That is the essential distinction.

Mr. Houghton

Would the right hon. Gentleman say that in fixing the amount of the annual bounties the fact that they were taxable was taken into account?

Mr. Brooke

Certainly, and indeed I think that it would be surely right to do so, because these men to Whom annual bounties are made payable are men going about their ordinary work, and it would be unfair to give a high Surtax payer whatever £150 was grossed up—it would be something quite substantial—whereas if we were paying the same amount of bounty to a man who was living on a very small income it would be of far less value. Therefore, the fact that they are liable to tax is taken into account; and these ad hoc once-for-all bounties should be nontaxable.

Mr. Morris

The right hon. Gentleman has given a different explanation from the one he gave ten minutes earlier. His explanation now as regards the "Ever-readies" is that they are not being paid a tax-free bounty because it is an annual one. In his speech ten minutes ago—and he will see this if he reads HANSARD tomorrow—the said that the reason why he was differentiating was because it was not a bounty. It was called a bounty, but was not in fact one. The right hon. Gentleman is now saying that it is a bounty, but an annual one, and that is the difference. Which is it?

Mr. Brooke

I am not sure how closely the hon. Gentleman followed the proceedings on the Army Reserve Act when all these things were explained. The "Ever-ready" may receive payment in two forms. He receives £150 a year for signing on and expressing a willingness to undertake certain responsibilities.

Mr. Houghton

A retainer.

Mr. Brooke

Yes, that is the best way of describing it. He then receives a once-for-all payment, which is a payment by way of compensation for disturbance if he is actually called up.

It would surely be wrong that that payment by way of compensation for disturbance should be taxable. Equally it would be wrong that the other general income of the Reservist or the "Ever-ready" should not be taken into account when he receives £150, or £50, whatever it may be, as an annual retainer.

That is the distinction. I have made it as clear as possible, and I think that this is essentially a tax matter. I assure the Committee that the Treasury has been fully in touch with these matters all the way through, and that the announcement in 1961 as well as all the arrangements under the Army Reserve Act were fully discussed and agreed with the Treasury.

Mr. Morris

I welcome the Secretary of State for War, for obvious reasons. Perhaps at the end of our discussion on this Clause we might have a brief word from him on some of the matters that I have sought to raise and which, in compliance with the invitation of my hon. Friend the Member for Cardiff, Southeast (Mr. Callaghan), I shall raise again because I am not satisfied with the explanation given by the Chief Secretary.

The right hon. Gentleman castigated me for using the word "welshing" and tried to make a pun on the part of the country that I have the honour to represent and on his previous office as Minister for Welsh Affairs. It is the Government who have experience of welshing, and, like many others, I feel strongly about the conduct of the Government and their failure to implement that part of the Grigg Report which dealt with soldiers' pay.

I seek to put the questions to the Secretary of State for War since he is now here and since the only reference we have in the Clause is to the scheme introduced on 19th July last year. Looking back to HANSARD for 19th July, in order to refresh the memory of the Secretary of State for War I should say that he set out the scheme in a short paragraph in the course of a statement he made about Regular Army recruiting. This is what he said: To this end, I have decided to offer a bounty of £200 to Regular soldiers due to leave the Army before the end of June, 1963, with nine years service or less, who extend their service by at least three years. This offer will be open as from today until the end of April, 1962. Similarly, a bounty of £200 will be offered to National Service men now serving who from today enlist on a Regular engagement."—[OFFICIAL REPORT, 19th July, 1961: Vol 644, c. 1244.] The Secretary of State for War—having followed closely, as I am sure he has, my reading of HANSARD—will not be able to recall any reference to tax exemption in that paragraph setting out the scheme in the offer he was making. The scheme referred to in the Clause made no reference whatever to that.

I should have thought that if an offer by the Secretary of State for War is worthy of the title of scheme, there should be the whole of the material parts of that scheme set out in any statement which the right hon. Gentleman makes to the House. Since the tax element is obviously an important part in the offer made concerning recruiting, I should have thought that would be of paramount importance and it should be found in the scheme as set out by the right hon. Gentleman in the House on 19th July. If he omits a significant part of the scheme he does—unwittingly—mislead the House as to the terms of the scheme. He cannot introduce a scheme and merely say, according to the terms of the Clause, there will be a £200 bounty and omit any reference whatever to the significant part of the scheme, the tax-free element.

I should have thought it elementary courtesy when the Secretary of State informs the House of a new scheme that he is making as part of his drive for more Regular soldiers that at that time he would tell the House that this Clause would have to be introduced at some future date and that he had that intention at that time. To put it at its most charitable, either the Secretary of State forgot to increase the tax-free element in the statement he made to the House or he left it out for some other reason which I cannot imagine, or thirdly it was not thought about at the time that the scheme was introduced. It was introduced in a slip-shod manner and t was not until a Question was put by my hon. Friend the Member for Barking (Mr. Driberg) on 24th July that the first reference was made to the tax-free element.

It seems strange that when important schemes of this nature are announced in the House for the benefit of everyone in the country who seeks to avail himself of the offer made we should have to wait until a Question is asked by one of my hon. Friends before we can be told the exact terms of the scheme. The question I am asking, which the Chief Secretary failed to answer because obviously he did not know the answer—

Mr. Brooke

I gave the precise answer.

Mr. Morris

The right hon. Gentleman failed to tell the Committee why on 19th July when the scheme was introduced in the House the Secretary of State made no reference at all to this tax-free element. If the right hon. Gentleman thinks that he has answered I have failed completely to understand the speech that he made a few minutes ago. I still await an answer to my question why, on the date when the scheme was introduced, no reference was made to its being tax-free, and why we had to wait until my hon. Friend the Member for Barking put down a Question, five days after the announcement of the scheme, before we were told what the position was. It seems elementary that when a scheme is introduced its full terms should be announced, and that the House should not have to wait until a Question is put down.

The Chief Secretary relied on precedent for taking this action without Parliamentary authority. He told the Committee that the Government were taking the first opportunity they had, in this Bill, to introduce the necessary legislative authority for not taxing these payments. Are we, therefore, to understand that until the Bill is passed no legislative authority whatsoever exists for making these tax-free payments?

I endorse what my hon. Friend the Member for Cardiff, South-East said: I am anxious that these payments should be tax-free. But I want a clear answer to the point that I have raised. Whatever the precedents may be, the Committee should have a far closer grip on the payment of public money in this way. By the time the Bill becomes an Act almost a year will have passed since the scheme was announced, and during that time there has been apparently no legislative authority for what has been done. The Chief Secretary will recall the Army Reserve Act. That provided an opportunity for giving the necessary authority for this payment.

My hon. Friend the Member for Cardiff, South-East referred to the position of the "Ever-readies". In his first reply the Chief Secretary stated that the difference there was that the £150 was not a bounty and that the "Ever-readies" would not therefore be covered by a provision of this nature. In his second reply he said that it was an annual bounty. He must choose between his two statements, and tell the Committee what the real answer is. Although the payment to the "Ever-readies" is of a different nature I find it difficult to differentiate between the two classes of volunteer. I would like to see the "Ever-readies" given the same advantage as the people who have benefited from the bounty of £200.

Is there any precedent for the whole of an offer of this kind being paid out before legislation is sought to justify that payment? This is not a continuing bounty, which will go on to the next financial year. This has come to an end. All this money has been paid out without Parliamentary sanction.

9.45 p.m.

Mr. Callaghan

I should like to thank the Secretary of State for War for coming to the Committee. We believe that it makes for much more harmonious discussion if the Minister, who was no doubt responsible initially for putting the Clause in the Finance Bill, is here to assist us.

I should like to ask him, in addition to the questions put by my hon. Friend the Member for Aberavon (Mr. Morris), to deal with this point. I understand from replies, given hitherto by the Chief Secretary to the Treasury that the scheme will, or does, cost £100,000. I am not quite sure which it is, and perhaps he will clear that up. We spend much time discussing sums far less than £100,000, and I think that it would not be unreasonable for us to ask the Secretary of State for an assurance that the money being voted here is, in fact, achieving the result that he hoped that it would when he brought it before the Committee. We should be glad to hear from him that the response in terms of those willing to re-engage has been of such a character as to justify the Committee writing this scheme permanently into the statute, so that this exemption will continue.

I think that the Committee would be much more satisfied if we had a statement and a reassurance from the Secretary of State on that point. I hope that it is true. We want his scheme to succeed. I do not want a return to the system which, I think, one of his generals at the War Office recently said might have been good for the country but nearly wrecked the Army. I should be grateful to hear from him that the money we are now being asked to vote is achieving the purpose he expected when putting it into the Finance Bill.

Mr. Brooke

The hon. Member for Cardiff, South-East (Mr. Callaghan) spoke as though this were a continuing scheme. The scheme, in fact, came to an end in the period between the publication of the Finance Bill and today. Therefore, nothing that we can do or not do here today will make any difference to the military value of the scheme which terminated at the end of April. I gave the figures of those who are affected by it and the amount in question.

In reply to the hon. Member for Aberavon (Mr. Morris), I would say that if anything wrong had been done by any public authority in this matter by not collecting the tax instantly, I have no doubt that the Comptroller and Auditor-General will bring it to the notice of the Public Accounts Committee. I have every reason to believe that the Public Accounts Committee does not look with any disfavour on what has long been the practice of the Department concerned, that when a Minister of the Crown announces in the House during the course of a financial year that legislation will be introduced at the earliest possible opportunity to exempt certain payments from tax, the tax is not collected for the remainder of that financial year. On those sums tax is not collected which would have to be repaid after the Bill has reached the Statute Book. It would cause great inconvenience to all concerned, particularly to the recipients of the money, who were eventually to be exempted by will of this House, if first they were called upon to pay and then had the money handed back to them.

As regards the precedents, the hon. Member for Aberavon was criticising what I think he thought was the vagueness of the reference to the scheme. I can but refer him to the Consolidation Act which consolidated the Finance Acts of 1946 and 1951 and many others with regard to Income Tax. If he looks at Section 457 of the Income Tax Act, 1952, he will see more than one reference to the scheme, with a date attached to it as the date on which it was announced. I do not think that there is any element of dubiety or uncertainty there. It has been a regular practice when schemes of this kind have been announced involving ad hoc bounties or gratuities that they shall be exempt from tax and every opportunity has been taken as soon as possible to exempt them. But there is a clear difference between an ad hoc once-for-all payment and the annual bounty which, for reasons I gave and reasons which I think commended themselves to the Committee, is subject to tax. Otherwise the value of the payment would vary enormously as between a man who paid a lot of Surtax and a man who paid a low rate of tax.

Mr. Morris

Will the right hon. Gentleman try to answer the question which I have posed now two or three times? When this scheme was announced on 19th July, 1961, why did not the Secretary of State for War make clear that it was tax-free? Why do we have to wait until Questions were put down by one of my hon. Friends in order to get the answer? Why was it not put as part of the scheme when that scheme was announced?

Mr. Brooke

I can but repeat the answer I gave before, and my right hon. Friend the Secretary of State for War can add to it or modify it as he wishes. I have no doubt that my right hon. Friend made the statement in the form in which he did because he took it for granted that Parliament was aware that once-for-all payments of this kind, by tradition, were tax-free, as distinct from the rest. It was perfectly reasonable for an hon. Member to get that on the record by asking him a question at a later date. But, so far as I am aware, it did not cause any uncertainty in the minds of anyone. It would have been a remarkable departure from precedent if a bounty of £200 had been offered to certain people for prolonging their service and then they found that they were taxed on it.

Mr. Eric Fletcher (Islington, East)

Surely we are to have a reply from the Secretary of State for War before we conclude our discussions on this Clause? After all, the Chief Secretary has done his best to extricate the Secretary of State for War from a very difficult and embarrassing position. The Chief Secretary has made three speeches, and in his last speech I thought that he gave a very obvious hint to his right hon. Friend when he said that the Secretary of State for War could either add to or subtract from what the Chief Secretary had been saying.

My hon. Friends raised this matter and they had to do so at length, and sometimes to repeat their questions, because the Secretary of State for War was not in the Chamber, as he ought to have been, when the discussion on Clause 16 started. But now the right hon. Gentleman has been in the Chamber long enough to have heard the question put to him. I do not think it good enough that he should sit silent and allow the Chief Secretary to the Treasury to take the responsibility for attempting to answer a question which has been put repeatedly to the Secretary of State for War.

We are entitled to an answer from the Secretary of State. He has had an opportunity to listen to the question being put, and I hope that he has made up his mind and is able to give us an answer to which the Committee is entitled before we part with the Clause. May I repeat the question and give the Secretary of State another opportunity to do himself justice and to give an explanation which may satisfy the Committee, if he is able to do so.

The Secretary of State for War announced an offer in the House of Commons on 19th July, 1961, which, curiously enough, is called a "scheme" in this Bill. I do not want to be technical, but I have never seen such a Clause as this in a Finance Bill. I think I am entitled to assume that what is referred to in Clause 16 as the scheme introduced on 19th July is the proposal made by the Secretary of State for War and reported in the OFFICIAL REPORT of 19th July at column 1244. Then the Secretary of State said that he had decided to offer a bounty of £200 to Regular soldiers and National Service men.

The question which has been asked is this. Why did not the Secretary of State for War indicate at that time that it was intended that that bounty should be free of tax? Did the Secretary of State know when he made the offer that he was intending the bounty to be free of tax? If he did know, why did he not say so? Why did he conceal it from Parliament? If he did not know, had he considered it? When was it first considered? Does not the Secretary of State know that in any proposals of this kind which he makes to Parliament he should be completely candid and tell the House of Commons the full facts? If it is intended that some payments should be, tax-free and others not tax-free, he ought to say so. My hon. Friends are not making any complaint on the merits of this tax-free payment. They are in fact drawing attention to the differential which exists between the treatment of this bounty and the treatment of the sums paid to the "Ever-readies". These are the matters on which we ought to have an assurance and a detailed reply from the Secretary of State for War before the Committee can be asked to agree to the Clause.

The Secretary of State for War (Mr. John Profumo)

If the Committee will forgive me for intervening —

Mr. Morris

We are delighted.

Mr. Profumo

—at this late hour and since it might be thought discourteous if I did not explain the matter to the Committee, I will very gladly do so. I can only repeat what my right hon. Friend the Chief Secretary to the Treasury has said. When I made this offer or announcement of the scheme—whatever one likes to call it—I felt, rightly or wrongly, that I was acting in accordance with precedent merely by announcing that a gratuity or bounty of this sort would be set up, because I knew that in the past they had been tax-free. I was fortified in my belief that there was no serious doubt in the minds of any hon. Members who were listening by the fact that no hon. Member cared to rise from his seat and ask me whether it would be tax free. If I had been asked I would gladly have confirmed, as I now confirm, that what my right hon. Friend has said is perfectly correct. I am so glad that the Committee has given me the opportunity of saying this.

Mr. Houghton

I am not being tiresome. I am just trying to assist the Committee to reach a conclusion. The Chief Secretary has referred to Section 457 of the Income Tax Act, 1952, which referred to a specific scheme. I know that my hon. Friend the Member for Islington, East (Mr. Fletcher) will allow me to point out to him that Section 457 referred to a scheme announced on a particular date in 1946, so in that respect there is nothing unusual about Clause 16. The Section not only provided for the exemption of bounties paid under the scheme announced on 15th April, 1946, but went on to provide for a similar exemption of bounties paid under any other scheme certified by the Treasury to make analogous provision", and so on. This seems to suggest that the Treasury could certify that another scheme was analogous to the one mentioned here and therefore the bounties under the analogous scheme would be exempt. However, there was a time limit to the period during which analogous schemes could be certified. The time limit was provided in this way— at any time during the continuance in force of the Emergency Powers (Defence) Act, 1939. I have not been able to check whether or not the Emergency Powers (Defence) Act, 1939, has now lapsed, but I assume that if it has that is the reason for having to make special provision. If it has not, presumably it would have been certified.

Does that clarify the position, and bring to a head that the need for Clause 16 is that the period covered by Section 457, which gave covering authority to grant exemptions for similar schemes, has lapsed, and that, therefore, special provision has now to be made? If so, we clearly understand why it is now being done, and we understand that it does not run counter to what has been done before.

Mr. Morris

It would be churlish of me not to thank the Secretary of State for War for coming here to assist us. I wish that he had been here earlier; we might then have saved a little time, because I had to repeat myself several times. But I welcome the Secretary of State, and we are glad that he has come here, and has replied.

Question put and agreed to.

Clause ordered to stand part of the Bill.