For subsection (2) of section 23 of the Finance Act 1956 (Retirement annuity relief) there shall be substituted the following subsection:—
(2) If in any year of assessment a reduction or a greater reduction would be made under this section in the relevant earnings of an individual but for an insufficiency of net relevant earnings, the amount of the reduction which would be made but for that insufficiency (less the amount of any reduction which is made in that year), shall be carried forward to the next following year and shall be treated for the purposes of relief under this section as increasing the amount of the qualifying premium payable in or for that following year and so on for succeeding years as necessary until fully relieved."—[Sir H. d'Avigdor-Goldsmid.]
§ Brought up, and read the First time.
§ Sir Henry d'Avigdor-Goldsmid (Walsall, South)
I beg to move, That the Clause be read a Second time.
This perhaps is a Clause which is particularly suitable to be presented at this hour when the audience is few, because it deals with a very limited class of taxpayer, and seeks to remove an injustice which that limited class of taxpayer suffers. The class of taxpayer to whom it refers is the individual who is self-employed in a trade or profession with a variable income which has been in the neighbourhood of £7,500 or more. It is not a very large class, but the background for the Clause is as follows.
When Sir James Millard Tucker reported some years ago, a serious attempt was made in the Finance Act, 1956, to embody many of the recommendations of his Report, particularly with regard to putting the self-employed person on a par for various taxation purposes with the salaried employee. It was provided in Section 22 of that Act that such an 1673 individual was allowed to deduct from his net earnings in a year the amount of any premium that he paid in that year under an approved contract for a life annuity on retirement, a scheme which in the case of employed persons is known as a top hat scheme, and this was an attempt to extend the advantages of the scheme to self-employed persons.
The Section went on to describe the amount of the deduction, which it termed a qualifying premium. It was limited to 10 per cent. of the person's income or £750 whichever was less. There was, however, a further amelioration granted so as to meet the difficulties of the self-employed person with a fluctuating income. He was allowed to make up another year the shortfall of income in any year in which 10 per cent. of his income did not amount to as much as the approved insurance premium. This was allowed as a carry-forward for following years.
However, by some accident of drafting which did not apparently come to the notice of the Committee at that time, the limit of £750 remained applicable in any one year despite the shortfall provisions. The result of this was that, to take the extreme case of an individual who had taken out a policy with an annual premium of £750, if he had a shortfall of income in any year so that it fell below £7,500 and, therefore, 10 per cent. of it did not come up to the amount of his insurance premium, £750, the carry-forward provisions were not of any value to him, because even if he had an income of £10,000 next year, the maximum deduction in respect of the insurance premium was £750.
This is a technical point which applies to a very limited number of people and I imagine that the cost to the Exchequer is nil or so small as not to be comparable to the cost of the stamps that we discussed recently. I also think that it is a valuable point that we seek in this Committee to try to do justice between one taxpayer and another, and wherever these anomalies exist, whatever the time of night, it is our duty to bring them to the attention of the Government for discussion to expose the case—not a very hard one in this instance, but there is a certain hardship which could, it seems to me, be reasonably overcome.
§ 12.45 a.m.
§ Mr. Green
I accept that my hon. Friend the Member for Walsall, South (Sir H. d'Avigdor-Goldsmid) has pointed to an unintentional anomaly produced by the provisions of Section 23(2) of the Finance Act, 1956. The point was brought to our attention last autumn by the Institute of Chartered Accountants in England and Wales, and again early this year by the corresponding Scottish Institute.
My hon. Friend is right. So far as can be established, the anomaly applies to a very few cases only, but it is a real anomaly, and because it applies to a very few cases, it was decided that the proper way to deal with it there and then was for the Board of Inland Revenue to authorise a new extra-statutory concession to deal with this technical but real point.
The terms of the concession were made known in a notice issued to the technical Press early in April, and the concession will be reported to the Comptroller and Auditor-General and published in the annual report of the Commissioners of Inland Revenue in the usual way. I ask my hon. Friend to study the terms of the extra-statutory concession which I believe meets the point which he has described tonight, and as I have seen it put forward by these bodies from outside.
§ The Clause is defective from a drafting point of view, and although in this Committee I never seek to make that a reason for rejecting a new Clause, one has to point that out to one's hon. Friends if they still want to put it down on Report. Perhaps my hon. Friend would like to consider between now and Report whether this extra-statutory concession does not fully meet his case. If it does, I suggest that the Clause is unnecessary in this Bill. But if my hon. Friend is not satisfied that it meets the case, perhaps he would like to reconsider the Clause, and I shall endeavour to help him on the drafting point. On that offer, I hope that he may feel that he need not press the Clause.
§ Mr. Mitchison
It is late—or early—but I wonder why the Government have not done anything about this. This is, apparently, an anomaly on a small scale. It is admitted to be an anomaly. It is not a very costly matter. It came 1675 to light last autumn, and an extra-statutory concession was made in written form, as these concessions are. I have never liked these extra-statutory concessions. I have never quite understood the reason for them.
Why do the Government leave it to their hon. Friends to bring them forward in statutory form—right or wrong in the drafting does not matter for this purpose—instead of doing it themselves? I am rather puzzled about this. I hope that the Minister will be able to explain how this has happened.
§ Mr. Millan
This point about extra-statutory concessions is worth pursuing for a moment or two, because there is considerable doubt among hon. Members, as well as among people outside, about the basis on which the Board of Inland Revenue decides that an extra-statutory concession should be granted in the first place.
What statutory authority is there for the Board of Inland Revenue making extra-statutory concessions? Why did the Board choose to do it in a case like this, and not in other equally worthy cases and anomalies which are brought to the attention of the Government from time to time?
There is another new Clause which one of my hon. Friends will move later this morning where the same kind of extra-statutory concession could equally well apply, but it has not been applied there. I wonder whether the Financial Secretary could say a little more about these extra-statutory concessions.
I see no reason why, if the Government want to get rid of this anomaly, they should not accept the Clause. I am not terribly enthusiastic about it, but if this is an anomaly and the Government want to put it right, I do not see why it should not be done by putting a Clause in the Finance Bill, rather than by an extra-statutory concession. The hon. Gentleman ought to give us a little further explanation of this.
§ Mr. Green
I am happy to try to answer that question. Both the hon. and learned Member for Kettering (Mr. Mitchison) and the hon. Member for Glasgow, Craigton (Mr. Millan) heard me say that I accept that this is an 1676 anomaly. We have met it as quickly as we can with an extra-statutory concession, which was produced in April, and I have offered the Committee to look at the matter to see whether it can or cannot be satisfactorily dealt with by Report. We have sought to meet what is admitted to be an anomaly. I think that that was not an unfair offer to make.
§ Sir H. d'Avigdor-Goldsmid
I am a little uncertain about the statutory foundation for an extra-statutory concession and I must consult those who know more about these matters than I do to see whether they are satisfied to live with an extra-statutory concession. The least I can do is to reserve their right and mine in the matter to put the Clause down again on Report. I can then do so if the interested people feel that an extra-statutory concession does not meet the point which they have raised. I beg to ask leave to withdraw the Motion.
§ Motion and Clause, by leave, withdrawn.