HC Deb 22 March 1967 vol 743 cc1656-69

11.44 a.m.

Mr. W. R. van Straubenzee (Wokingham)

I beg to move, That an humble Address be presented to Her Majesty, praying that the University and Other Awards Amending Regulations 1967 (S.I., 1967. No. 209), dated 20th February 1967, a copy of which was laid before this House on 28th February, be annulled. It is important to make it clear to those who watch our proceedings that it is necessary for an Opposition to pray against an Order in order to draw attention to the matter. Subject to the explanation which the Minister of State will be kind enough to give us, I want to make it quite clear that the object of the Prayer is to probe the matter rather than necessarily to speak against it in the strict sense of the word.

This is a very elaborate matter. I hope that the Minister of State will be kind enough to stop me at once if I go wrong on a matter of fact. These are elaborate Regulations through which to thread one's way and I would not want inadvertently to mislead anyone inside the House or outside it by giving a fact wrong. I will, first, explain briefly what I understand the effect of the Regulations to be.

These Regulations stem from the University and Other Awards Regulations, 1965, which are for this purpose the parent Regulations. These Regulations refer, in particular, to Schedule 2 of the parent Regulations and to the method by which the income of a parent is computed for purposes of a university or other award. In particular, reference is made to how that income is computed when the parent's income includes interest from a building society. That I understand to be what we are considering.

As the Regulations stand, unamended by this Statutory Instrument, the provision in question being paragraph 2(a) of Part I of Schedule 2 to the 1965 Regulations, the parent's gross income is for this purpose assessed as his total income from all sources, computed as for income tax purposes where United Kingdom Income Tax is payable. Those last words were added by amending Regulations in 1966.

So a parent with a son or a daughter who is a candidate for an award has to prove his income to the authorities, computed as for Income Tax purposes. For example, if his income includes interest or dividends from which tax is deducted at source, what he does is exactly the same thing as with his Income Tax return. He states the gross income that he receives from such dividends. He may show what tax has been deducted, but the important point is that he shows his gross income.

When it comes to building society interest, on the other hand, he presumably at the moment shows his income as it actually is received.

The Minister of State, Department of Education and Science (Mr. Goronwy Roberts)

indicated assent.

Mr. van Straubenne

I am much obliged to the Minister for indicating his assent, because this is clearly the point from which we start.

The new position, as a result of this Statutory Instrument, will be that a parent will show his income from investment, or from any other source, gross, in precisely the same way as he has up to now. However, in relation to interest he receives from his building society account he will no longer return just the actual amount he receives. He will, as the technical phrase goes, gross it up. He will gross up his building society interest at the building society's rate of tax, at the special rate of tax appropriate to a building society. This is the change, as I understand it, which is brought about by this Statutory Instrument.

I will explain briefly what this special rate of tax for a building society is. Every building society which has entered into an agreement with the Revenue under the relevant Section of the 1952 Act—

Mr. Goronwy Roberts

I wonder whether I ought to intervene at this point to say that there will be no change under the amended Regulations in the way in which a parent will put down his building society item. That is to say, there is no change from the way he did it before, namely, to put down the net received by him. If I interrupted the hon. Gentleman unnecessarily, I am sure that he will forgive me.

Mr. van Straubenzee

I am most obliged to the hon. Gentleman. I shall be very grateful if he will explain this later. This is one of the reasons for having this Prayer. The Minister will understand that this has raised some doubts in the minds of parents and others. It will be helpful if we can have this carefully explained.

To justify the anxiety which is felt as a result of this Statutory Instrument, there is a special system for building societies by which they are subjected to what I will loosely call a "spot check" every year by the Revenue, and it is upon that "spot check" that their rate of tax is computed.

The intervention of the Minister is very helpful, but I have to remind the House that the actual terms of the Statutory Instrument require the income, in so far as it stems from building society interest, to have been deemed to have been received after deduction of Income Tax at the reduced rate to which I am referring. I should have thought that the effect of this is that there must be added to the return which the parent makes, the gross-up, at the building society rate, of the interest which he receives on his account.

Clearly, there is some change, or we would not have had this Statutory Instrument. The effect, as I see it—and again, we will be much helped by the Minister—is that the gross income of the parent, for the purposes of award, will be larger than it would otherwise have been.

Mr. Goronwy Roberts

indicated dissent.

Mr. van Straubenzee

The Minister is shaking his head in a contrary sense. He will understand just how difficult it is to thread one's way through these highly complicated matters. As he has made the point quite clear, I can contract a number of the questions I have, because it is clear that the change is not so substantial as was previously thought.

The Minister will understand that at the moment there is no mention in the Regulations of building society interest, and that is why this matter has been brought in. Plainly, somebody, to use the jargon, will be grossing-up somewhere, otherwise there would be no point in having this Statutory Instrument.

The Minister said, by way of intervention, that the parent will not do so. As I understood him, the parent will still put down, in the return which he makes to the L.E.A., the actual sum which the parent receives from the building society. That will instantly set a large number of parents' minds at rest, because one of the problems that I would otherwise have raised with the hon. Gentleman is how the individual parent was expected to lay his hands upon the rate of tax to which the building society is subjected in the grossed-up income he receives from the building society. If ever I can again say a phrase like that, on a technical matter of this kind, I will congratulate myself.

We now have the position that the L.E.A. must take into account, for tax purposes, the gross income arising from the building society. It follows that in precisely the same way as the parent's net income from, for example, investments, is grossed-up, quite fairly and properly, for Income Tax purposes—which it has to be, because it has to be computed. In other words, he has to indicate the gross income and not net—so it must be that the local education authority, who are the people who take account of the tax which has been suffered, will, in effect, be awarding to the parent a higher income than he would otherwise have had. The result of that, as the Minister will realise, is that the award granted to the son or daughter is likely to be proportionately a little bit less.

There may not be a very great deal in this, but there are some snags. I wonder whether the hon. Gentleman, in the inquiries which he will have made from the Treasury, knows of any other circumstances in which building society tax rates are taken into account. I wonder whether his inquiries with the Treasury can give any other precedent for this happening. I may be wrong, but I do not myself know of any other case where income in the hands of the taxpayer, albeit that he himself is not responsible for the process, is grossed-up at the building society's rate of tax. If there are other examples of precedents for this, I am sure that the Minister will be kind enough to give them.

There are a number of examples where holders of accounts in building societies have to gross them up for tax purposes. The most obvious example would be the Surtax payer. The Surtax payer who receives interest from a building society has to gross up that interest for the purpose of computing his Surtax liability. That is well understood. The significant difference is that the Surtax payer grosses it up at the standard rate of Income Tax, but here we are talking about a grossing-up process at the building society's rate of tax. As far as I know, there is no other example, and it would be helpful if the Minister's inquiries show this. Perhaps we might be allowed to know if there are precedents for this particular process.

The second point to which I should like to draw attention is that it contrasts fairly sharply with other broadly similar operations through which the ordinary citizen has to go. If, for example, somebody is applying to the Ministry of Social Security for a supplementary benefit, as it is now called, quite properly the income of the applicant is taken into account before any award is made. To that extent, the situation is broadly similar to the one we are now discussing.

As far as I know—I stand to be corrected—the Ministry of Social Security, in operating its scheme, takes into account the money actually received by the applicant from the building society. So far as I know, the Ministry does not require any kind of calculation of tax. The practical reason for that, is, of course, that if one is likely to come within the ambit of supplementary benefit payments, one is equally likely not to be affected by any kind of Income Tax. But the principle is the same, and I draw it to the Minister's attention as an example of another operation through which the ordinary citizen goes, where, as far as I can see, no Government agency concerns itself with the tax which the income has suffered at the building society rate.

At the other end of the scale, let us suppose that there is someone who pays Surtax. At the moment, he grosses up at the standard rate of Income Tax. Under these Regulations his income will be grossed up at the building society rate of tax. Paradoxically, therefore, the Regulations will be of substantial benefit to the Surtax payer. This may, of course, be the Minister's intention, and I am not necessarily against that. I have never believed in sharply criticising the Surtax payer.

I think I heard one of my hon. Friends murmuring something about obtaining a grant. I ask my hon. Friend to consider the position of a person paying Surtax on unearned income if he has a comparatively large family. I shall not bore my hon. Friend with the details, but I have checked this, and I find that whereas, at the moment, for Surtax purposes he must gross up his interest from a building society at the standard rate of Income Tax, under the Regulations the local education authority will gross them up at the building society rate of tax. Proportionately, therefore, these Regulations will be of greater benefit to the Surtax payer than to other people. As I say, this may be what the Minister intends.

These are very narrow and highly technical points. I do not propose to stray from the strictness or the narrowness of the matters raised by the Regulations, because we cannot debate the principle behind them. These Regulations stem from the University and Other Awards Regulations, which are based on the principle of a parental contribution. It is this contribution which we are discussing, and it is one detailed aspect of that parental contribution which we are now questioning.

I think that it would be helpful, even in a short debate like this, if the Minister would make clear how much longer he expects a parental contribution will be required, and therefore how much longer this method of dealing with it from the point of view of building society interest will continue. The Minister will remember that as recently as 1963 his right hon. Friend the Secretary of State set his hand to a Report entitled, "The Years of Crisis", issued by the Labour Party Study Group on Higher Education. The Report said quite definitely and clearly that parental contributions should be abolished.

In spite of the fact that we are dealing with the narrow point of building society interest, I think that it would be helpful if the Minister would say whether he expects these Regulations and their successors to continue, or whether he expects to come forward with other amending Regulations. I ask that because of the clear declaration to which I have just referred, that contributions would be abolished.

If it is the Government's intention to abolish them, these Regulations become of comparatively little interest, because they will not be in force for very much longer. If, on the other hand, it is not the Government's intention to carry out the statement in that Report, we must look at these Regulations more closely as they relate to building society interest.

I hope that it has been helpful for me to raise these matters, and we shall listen with interest to the Minister's detailed explanation of the issues involved.

12.5 p.m.

Mr. Kenneth Lewis (Rutland and Stamford)

It is rather refreshing that for a change we are considering the obligation of parents from the point of view of education rather than considering a great deal of what has been said during the last week or two about students.

Last night I appeared on B.B.C. television to take part in a discussion with some of the students from the London School of Economics. They were sitting on cushions, and we were to sit on chairs. They said that it was wrong that we should be sitting on chairs while they were sitting on cushions. I said that we were used to sitting on the Floor of the House of Commons anyway, and that the only person who sat on a Chair in the House was Mr. Speaker or his Deputy, or the Chairman of Ways and Means or his Deputy, and the Clerk, and we did not, therefore, mind sitting on cushions. Last night was the first time that I have taken part in a public debate Japanese fashion.

These Regulations are very narrow indeed. Having listened to my hon. Friend the Member for Wokingham (Mr. van Straubenzee), I am amazed at the authority with which he is able to disentangle them. I was unable to do so until I heard him. I am still not sure whether, when the Minister replies, he will say that these Regulations will be an advantage or a disadvantage to parents, which makes it rather difficult for me to put my argument.

The Regulations concern either an upward movement in a parent's obligations, or a downward movement, I am not sure which. One cannot help but be impressed by the fact that the obligations of parents under the 1965 Regulations, which were amended last year, and which we are amending again now, are very real, and that the amount of free grant is given at a very low level of income indeed. Many a typist earns a good deal more than £700. It is above this level that a person starts to make a contribution. A person with an income of £1,400 contributes £64, and thereafter contributes £1 for every £10 on the balance of income. If, therefore, the Regulations provide a benefit, it is only a small one in relation to the obligation imposed on parents.

I hope that all students will recognise that although the State assist with the cost of their education, some of us did not have the opportunities which they have and that parents have to pay a substantial part of the bill. I hope that students will recognise that these Regulations not only provide opportunities for the State to assist them, but impose obligations on them, and that the kind of nonsense about which we have been hearing during the last week or two must stop.

Mr. Deputy Speaker (Mr. Sydney Irving)

Order. The hon. Member is getting very wide of the Regulations which are concerned only with the computation of income.

Mr. Lewis

I understand that, Mr. Deputy Speaker, but the computation of income and these Regulations relate to the obligations of parents. The other day I asked the Secretary of State for Education and Science whether he was prepared to withdraw grants from students who were not attending courses, for instance when there was a strike as there has been at the L.S.E.

Mr. Deputy Speaker

Order. These are important matters, but the rules of order do not allow us to discuss them on these Regulations. The hon. Member must keep to the Regulations.

Mr. Lewis

The Minister replied to my Question in an odd way, by saying that the Regulations already permitted this to be done. But he said "No" at the beginning of his answer, which meant that he expected local authorities to take action but was not prepared to do so himself.

These Regulations make a change in respect of parents. Since the Minister is prepared to make a change in this respect he should be prepared to make a change by bringing in other Regulations to make it clear—

Mr. Deputy Speaker

I wonder whether the hon. Member heard what I said. I am afraid that he is out of order. He cannot discuss matters other than the Regulations and what is in them. He has gone beyond them. He must come back to the Regulations.

Mr. Lewis

I will come back to the Regulations, Mr. Deputy Speaker. They make a change in respect of parents. I should like to know from the Minister exactly what that change is. I hope that it is a change for the better. My hon. Friend the Member for Wokingham said that the Minister and his right hon. Friend had committed themselves eventually to do away with parental contributions to education. That being the case, the least the Minister can do is to make it easier for parents—but the Regulations do not do much in that respect. I would not say that they represent even a minimum step towards making it easier for parents with modest incomes—say, £24 a week and under. In those circumstances I hope that the Minister will tell us that he will bring in other Regulations, tied to these, which will go much further in assisting parents, and will make it clear that he hopes that student bodies will realise that they also have obligations.

Mr. Peter Archer (Rowley Regis and Tipton)

Is not the hon. Gentleman aware that students who have not followed their courses effectively are already weeded out? The universities attend to such matters.

Mr. Deputy Speaker

Order. We are getting wide of the matter in hand.

12.13 p.m.

Miss J. M. Quennell (Petersfield)

I congratulate my hon. Friend upon threading his way through these rather incomprehensible Regulations with lucidity and skill. During the course of my hon. Friend's speech the Minister of State's expressions and inclinations of the head led me to hope that as a result of these Regulations parents will be no worse off than they were before. I do not want to curtail the time available to the Minister to reply, but I would have thought that the average parent, looking at the Regulations, would have been struck by the last part of the proviso in paragraph 2 and would have assumed immediately that it meant that he would be more severely hit by the change in the Regulations than apparently will be the case. I suggest that with Statutory Instruments of this nature the Explanatory Notes should be more comprehensive, so that people can understand what the contents of the Instruments mean.

The debate has served a very useful purpose. I hope that the Minister can put on record what the darned Regulations mean. Perhaps he will bear in mind the fact that Explanatory Notes which contain appalling grammatical abortions, as in this case, make the Instruments almost incomprehensible. An Explanatory Note which made some sense would be a great contribution towards a better understanding of the Regulations.

12.15 p.m.

The Minister of State, Department of Education and Science (Mr. Goronwy Roberts)

These Amending Regulations are not intended to introduce any change in practice. They are intended to resolve doubts about the legal interpretation. They provide specific cover for a practice which has been recommended to local education authorities ever since the University and Other Awards Regulations, 1962, were made by the right hon. Member for Birmingham, Handsworth (Sir E. Boyle)—the then Minister of Education—following on the Education Act, 1962, when the new arrangements for awards came into effect.

When assessing the parental contribution towards the support of a student it is intended that income derived from capital should be taken into account. Income derived from capital is subject to Income Tax, and these Regulations deal with certain complications which arise in computing parental income for the purpose of assessing parental contributions when the parent has shares or deposits in a building society. Broadly speaking, wherever it is possible to do so the Inland Revenue arranges for Income Tax on income from capital—investment income—to be collected by deduction before it reaches the person to whom the investment income belongs.

In the normal case of dividends from company shares the amount paid to the parent of a student is net of Income Tax. For every £ due to the parent of the student, gross, only 11s. 9d. is paid. The other 8s. 3d., representing the Income Tax on the dividend, is retained by the company, which is then responsible for accounting for it to the Inland Revenue. Nevertheless, the income of the parent would normally be regarded as the gross amount of dividend or interest and not the amount net of tax actually paid to him.

When assessing parental contributions the practice has always been to take into account the gross amount in dividends or interest due to the parents and not the smaller amount, net of tax, which is actually paid to him.

The position is somewhat different in the case of interest on investments in building societies. The Inland Revenue has special statutory arrangements with building societies whereby the societies do not deduct Income Tax from distributions to shareholders and depositors; instead, the societies account to the Inland Revenue for tax at a composite rate on the aggregate amount of the distribution. The rate to which the hon. Member referred is 6s. 3d. for 1966–67, and represents an average of the rates at which tax would be payable by the various investors.

The law expressly provides that no assessments are to be made on the investors, so that no further Income Tax is paid by them. It has always been the intention that parental contributions should be assessed by reference to the gross amount of interest from building societies—that is, the net amount grossed up to take account of the special composite rate of Income Tax paid in respect of that interest by the building societies.

The position under the old University and other Awards Regulations, 1962, was, beyond doubt, that those Regulations were intended to provide for this grossing up of building society interest in computing parental incomes. The Department of Education and Science, and the Ministry of Education previously, has always advised authorities to gross up building society interest in this way.

Following a challenge of an authority's interpretation of the Awards Regulations on these lines, the matter was considered further with the conclusion that, as drafted, they left the matter open to doubt. To put it right, the Secretary of State decided to amend the definition of the gross income of the parents of an award holder receiving interest or dividends from a building society. The necessary Amendments have been made by the University and Other Awards (Amendment) Regulations, 1967, which are on the Table.

I stress that the Amending Regulations are intended solely to resolve doubts about the interpretation of the original Awards Regulations and not to alter the existing practice in the assessment of parental contributions. The present practice of grossing up building society interest accounts for just over 10s. a year of the value of the average award. By putting the present practice beyond doubt, there will be no change in the amount which the average parent will need to pay in support of a son or daughter who is an award holder.

The cost of ceasing to do this—not putting this beyond doubt—apart from the illogicality of such a procedure, would amount to over £150,000 a year, which would have to be met out of the total resources available for education. There is, thus, no new imposition on parents but an attempt in these Regulations to put beyond doubt what, the present practice, which has obtained under successive Governments and successive Ministers, has been since 1962.

The hon. Member for Wokingham (Mr. van Straubenzee) raised a number of important questions, and although some were not strictly within this discussion, they were, nevertheless, justifiable. He mentioned precedents, on which I cannot give information at the moment, but I will consult my right hon. Friend at the Treasury about them. Second, he referred to the contrast with procedure for social benefit, and it would be useful to compare the two. There is justification for the variation. I thought that the hon. Gentleman understood that there were fundamental differences between the two spheres, but I take the point.

Third, he mentioned Surtax payers. The right comment on that would be that he is probably right about grossing up at 6s. 3d. in the £ in that case. If we followed Surtax precedent and grossed up at the standard rate of 8s. 3d., the parental contribution would be increased and the award's value reduced. Thus, we are, I think, being fair to parents, especially at levels of income which mean that they are unlikely to be receiving very high grants or paying only small contributions towards a student's support.

The hon. Member for Rutland and Stamford (Mr. Kenneth Lewis) spoke about student discipline and university government. He will understand that I cannot follow him into those deep waters, especially in view of the Chair's alertness. I was glad, however, to hear one or two of his points about parental contributions. It is right that the country should understand that many parents still make substantial sacrifices to support their sons and daughters in further and higher education. Without contravening the bounds of order, perhaps I may add that the vast majority of students understand this and that only a very small minority give the appearance of being impervious to the fact that a great effort has been made at home to sustain them and enable them to qualify for a meaningful and rewarding career.

I hope that my explanation will satisfy the House that there is no change in practice. Nobody gains or loses by this. On the question of what happens to the system of controlling awards in future, I do not wish to be drawn, but I would say that the foreword to the publication from which the hon. Gentleman quoted made it clear that it was not a Labour Party policy document. It has been made clear on more than one occasion that there are higher priorities in education than the abolition of parental contribution, however desirable that might be. It would cost about £30 million a year, and I think both sides will balance this with the priorities on the social services generally. I hope that the hon. Gentleman and the House will agree that these Regulations should go forward.

Mr. van Straubenzee

We are obliged, as always, for the Minister of State's painstaking explanation. It is clear from his explanation that what has been happening may have been slightly improper legally and that the Regulations will put it right. What has happened is that some eager beaver, probably a lawyer, got on to this, and that is why the Undersecretary is here. I understand his embarrassment about my earlier question on the broad principle. We will not explore that now; we can come back to it.

In warm echo of what the hon. Gentleman said, I would agree that the Regulations will affect a large number of people, the greater proportion of whom are conscientiously carrying through their courses of study. It is important with desirable Regulations like this not to be knocked off our perches by any recent or other events.

I beg to ask leave to withdraw the Motion.

Motion, by leave, withdrawn.