§ Where, pursuant to the National Health Service (Superannuation) Regulations 1961 or any statutory modification thereof for the time being in force, the Secretary of State for Social Services in any year of assessment pays to a practitioner (as defined in those regulations) a contribution towards the maintenance of a contract or policy of insurance held by that practitioner such contribution shall be deemed for all purposes of the Income Tax Acts to be income of the practitioner for that year of assessment and shall cease to be assessable to tax under Case III of Schedule D and shall henceforth only be assessable to tax under Case II of Schedule D.—[Mr. Dell.]
§ Brought up, and read the First time.
§ Mr. Dell
I beg to move, That the Clause be read a Second time.
The main object in tabling the Clause is to hear the Treasury's reaction to representations made to it by a deputation which waited on it last February. I understand that these representations were sympathetically received but that no commitment was made. The background is that when the National Health Service was introduced 800 doctors exercised the option to opt out of the service superannuation scheme.
To do this, agreed endowment policies had to be set aside for this purpose with an undertaking that the policies should not be assigned. A total of 8 per cent. of the doctor's superannuable income has been paid by his executive council. For many years the contributions were taxed on an earned income level. Recently it has been insisted that they should be taxed as unearned income, in reliance on the case of Leahy v. Hawkins. This seriously affects the tax position of the doctors concerned. Would the Treasury be prepared to accept a Clause of this kind, which is intended to restore the earlier position?
§ Mr. Patrick Jenkin
I am grateful to the right hon. Member for Birkenhead (Mr. Dell) for moving the new Clause so briefly, because that will enable me to reply briefly without seeming to be guilty of discourtesy either to him or to the House.
The right hon. Gentleman has quite rightly set the context in which this matter arises in the introduction of the 1077 National Health Service and the arrangement which was made with the doctors shortly thereafter. On only one point would I take issue with him. The case of Leahy v. Hawkins was in 1952, and it was in that case that the High Court decided that the appropriate tax treatment of these payments made by the authorities in respect of a doctor's service was to tax them under Case III of Schedule D and not as part of his Case II remuneration. The doctor in question had appealed on the footing that the payment should not be taxed at all. If there was ever a case of the fox and the grapes, this was it.
So far from gaining the contention that the payment should not be taxed, the result—not only in the case of the doctor, but in the case of all the other 800-odd doctors—was the treatment of the payment as a Case III receipt. That meant that it did not qualify for earned income relief. I well remember, last February, receiving a deputation to discuss these matters, and I hope that I would always have received such a deputation sympathetically, because I was anxious to hear the case that was made.
The difficulty of the Inland Revenue in this matter is that the law is quite clearly stated in the High Court and the doctor did not appeal. No other doctor has thought it worth while to pursue the case to a higher court to try, perhaps, to reverse the judgment in Leahy v. Hawkins. In those circumstances, the Inland Revenue has no option but to tax the payments in the manner which the court declared to be the law.
§ Mr. Jenkin
The hon. and learned Gentleman is very perceptive. His right hon. Friend has moved a new Clause to change the tax treatment.
This is a fading problem because as the doctors retire so the matter becomes less relevant. Every year there are doctors who retire and these are, on the whole, the older doctors in the National Health Service.
Secondly, the reality of the matter is the earned income relief. This is what the doctors are interested in. It is now worth a good deal more than it was in 1952, when the case was decided, because of the 1078 changes that were made in 1957, in 1961 and, again, in this year's Bill. I can understand that there is, therefore, a growing feeling that perhaps something should be done.
We also have to look at this matter, however, in the context of the tax reform which my right hon. Friend the Chancellor announced in the Budget and which is embodied in Part III of the Bill, under which, as the right hon. Gentleman will remember, the first slice of investment income will after 1973 be taxed at the rate appropriate to earned income.
Perhaps, without going in any way to disclose the figures—although no decision has been reached about what the first slice will be—I may put the matter into some sort of context. Taking the average doctor's remuneration, less the expenses which he is allowed to charge, of £4,800, the 8 per cent. National Health Service payment amounts to £384. Applying the 15 per cent. earned income relief and taxing it as Case II rather than Case III. the difference in the amount of tax would be about £23.
It is not as if it is a very major matter for the taxpayers. That would indicate the sort of sum that might be involved should the first slice be sufficient to take account of the payment of that order, but I am making absolutely no forecasts and giving no indication that that is what it would be.
One is not talking about a substantial sum in relation to these payments, and my advice to the House, therefore, is that it would be right to let the case of Leahy v. Hawkins stand, as it has stood for nearly 20 years without challenge by the medical profession, until 1973–74 when the new arrangements come in.
In the light of this I give the right hon. Gentleman a categorical assurance that, if I still have any responsibility for these matters, I will undertake to look at this again to see whether any further changes are necessary. I hope with that assurance the right hon. Gentleman will feel able to withdraw his new Clause.
§ Motion and Clause, by leave, withdrawn.