TAX EXEMPTION FOR NON-REGISTERED TRADE UNIONS

HC Deb 10 July 1973 vol 859 cc1419-29

In section 123 (1)(a) of the Finance Act 1972 the words "before the end of 5th April 1972" shall be omitted.—[Mr. Brian Walden.]

Brought up, and read the First time.

Mr. Brian Walden (Birmingham, All Saints)

I beg to move, That the clause be read a Second time.

The hon. Member for Surrey, East (Mr. William Clark), in an interjection in the previous debate, asked about registered and deregistered trade unions. This is an important new clause dealing with that matter. It is one which I hope the Minister of State, if he is replying, will find agreeable, because for once he does not have to worry about the studies which review bodies might be having or about chats he might find it necessary, at some future date, to have with Ministers.

This relates to general principle and the rubric sums it up well: Tax exemption for non-registered trade unions". I want to urge on the Treasury, whose responsibility it must be—and certainly not that of the Attorney-General, or the Department of Trade and Industry, or the Secretary of State for Employment—that it is wrong as a principle of taxation that non-registered trade unions within the meaning of the 1971 Act should forgo certain tax reliefs which were previously available to registered trade unions, under the old system.

I want to argue that a fiscal penalty should not be attached to a political act on the part of the trade unions in de-registering. It was initially a political act on the part of the Government in introducing a completely new set of rules and regulations for trade unions, which were highly controversial—so controversial that when they were introduced the Opposition took the unusual step of saying that it intended to remove the legislation root and branch from the statute book.

I want to argue the case for continued exemption, even if unions are not registered under that Act. There are technical differences associated with the new clause which my hon. Friend the Member for Chester-le-Street (Mr. Radice) wishes to mention and there are a number of points in relation to Corporation Tax, by far the most onerous of the taxes borne by trade unions. There are additional problems involved there. I recognise that, but, in what is expected to be a brief debate, I hope the House will not expect me to start on them. My hon. Friend does expect to do so.

I want to get to the pith of the issue, an issue of general principle, and it will be a relief to the Minister of State to be able to talk on an issue of general principle. I want to explain how the whole matter comes about.

If anybody cares to refer to Section 123 of the Finance Act, 1972, they will see that it gives exemption for all trade unions but makes it clear that the union has to be registered, or the relief ends at 5th April 1972.

Perhaps 1 should read Section 123(1)(a) to make it clear. Subsection (1)(a) is on page 100 of the Finance Act 1972 and reads: no organisation which immediately before 1st October 1971, was a registered trade union shall be treated for the purposes of section 338 of the Taxes Act (exemption of income and gains applied for the purpose of provident benefits) as having ceased to be such a trade union"— that is where we want to end it, but it goes on: before the end of 5th April 1972;". Looking at the Industrial Relations Act 1971, I can say without fear of contradiction that in all the sections relating to registration in that Act—and I have looked at it with care, including Part IV—deregistered unions can most certainly meet all the criteria laid down.

I say that deliberately, because obviously the Treasury was sure to protect itself against bogus organisations which were not subject to any measure of disciplinary control or qualification and would prove to be not bona fide trade unions or organisations of workers but claimed that they were for purposes of getting tax exemptions to which they had no entitlement. That would have been the old situation before the 1971 Act when the provision was that a union had to register with the Registrar of Friendly Societies. A very sensible provision that was. There could have been no objection to that. There was no objection to that on the part of unions.

It is the Government who have changed the situation. The deregistered unions are in every sense classic trade unions. If they chose to apply for registration, I do not know one of them which would not get it. The reason that they are not registered is a political reason. They will not register. Indeed, the members of these unions have compelled the executives of certain unions which wished to register in order to conform to this section of the Finance Act to deregister. It is well known that the Trades Union Congress is advocating the expulsion from the TUC of any union that refuses to deregister.

Hon. Members opposite are perfectly entitled to say that this is a very sad state of affairs and not at all what they intended in the Industrial Relations Act. I will say nothing about that—I do not wish to drift out of order—other than that I always told hon. Members opposite that this is what would happen. If they need to have it proved to them again, I repeat that the 1971 legislation is unworkable. The trade unions will never accept it.

The issue tonight is whether, that being the unions' point of view—a perfectly legitimate point of view, supported by one major political party; a view opposed, admittedly, by the other and ruling political party—the Government should allow the tax system to penalise de-registered unions.

The point urged from this side is that the Government should not if an organisation is a bona fide trade union. I do not greatly object for this purpose to the definitions in the 1971 Act. An organisation which is obviously of the kind specified in Part IV of the 1971 Act should receive tax exemption whether or not it is registered. I do not see why the principle of registration under the 1971 Act should affect the tax liability of a trade union.

The Government can argue that a union is not a registered trade union. What is the difference? It is a trade union. The great majority of manual workers' unions are not registered and never will be registered under the 1971 Act: there is no prospect of that. I cannot say what will happen when the Prime Minister discusses with the CBI and the TUC future economic policy. It would be out of order for me to do so. However, it may well be that the Government will in the end wish to drop this provision as part of a package deal which the House of Commons will not be told about until the deal has been made and then presumably, as usual, we shall be expected to endorse it whether we like it or not, and that applies to Government back benchers as well.

It would be much better if the Minister of State could say that, technicalities of the clause aside, the principle of the clause, appeals to him. I will re-state the principle. The deregistered unions are bona fide organisations of workers. If the Revenue wishes to check that to ascertain that they are bona fide, I have no objection to that.

But it is wrong that the Revenue should discriminate against deregistered unions because of the farcical 1971 Act, a party political Act, anyway, an Act designed to force unions to do things they did not want to do and never will do. It cannot be good tax law that the fiscal system should be used to penalise such unions and it can have no justification other than coercion. The attempt is obvious—to coerce the unions into registering, because of the financial disadvantages that they will suffer if they do not register. It will fail, of course. No British people in any institution will be bullied. The Government will not bully them into registering, and in any case it is wrong that they should try.

I hope to hear from the Minister of State the fiscal principle on which the present arrangement is founded. Does he argue that these organisations are not in every respect, except the fact of registration, identical with the registered unions? How can he possibly justify this coercive anomaly?

11.15 p.m.

Mr. Giles Radice (Chester-le-Street)

I support the new clause, and I speak as a trade union-sponsored Member. The tax position of trade unions is at present an utter mess. As my hon. Friend the Member for Birmingham, All Saints (Mr. Brian Walden) said, the Industrial Relations Act has meant that only registered trade unions have tax concessions, and, as the vast majority of trade unions are deregistered, most unions have lost the concessions.

The position is made more difficult by the changes in corporation tax introduced by the present Government and the effect which these have on the larger unions. Because unions do not and cannot distribute profits, they will be liable to pay the full rate of corporation tax. This is a classic anomaly, and the situation was fully recognised by the Select Committee on Corporation Tax. A company, because it is able to distribute profits, is able to avoid the full rate of corporation tax, but trade unions, like other public bodies, including both the Labour Party and the Conservative Party, are pre- vented by their very nature from taking advantage of the imputation system.

It is true that small unions will have the specially reduced rate for small companies, but the large unions, which comprise over 50 per cent. of trade union membership, will have to pay the full rate. Large sums of money are involved. In the case of my own union, the General and Municipal Workers Union, we are talking here of corporation tax on the £300,000 in non-company investment income which it derives from rents, local authority loans, Government stocks and so on. It is an important disadvantage.

In March 1972, the Government said that they would look into the matter, and it is true that the Inland Revenue has issued a consultative document. But both in that document and in the Treasury's reply in Standing Committee, they put all the emphasis on the difficulties of arriving at a definition of a public body which would be entitled to the relief. Thus, the situation is still very difficult for us.

All hon. Members on both sides accept the importance of the Government's talks with the CBI and the TUC. If the Government want to show their good faith, if they want to show that they are no longer anti-union, they should accept the new clause.

Mr. Nott

As we have explained several times in the past, the reason for requiring registration as a condition of allowing tax relief is that, where a particular category of organisation or fund is accorded special tax reliefs, some form of statutory control should be imposed to prevent abuse and to ensure that the purpose of the relief is met.

For bodies such as trade unions or friendly societies, we think that the appropriate form of control is available through registration with the registrar of trade unions or the registrar of friendly societies. For approved pension funds the necessary supervision is exercised by the superannuation funds office of the Inland Revenue. For charities the primary oversight comes from registration with the Charity Commission and in each case there is a requirement that the rules of the body or fund shall be subject to critical scrutiny by the supervising authority. There is no reason why any trade union which seeks special tax relief should be exempt from this general requirement.

It was suggested in the debate last year, which I read, that some special arrangement should be made by the Treasury for those trade unions which did not wish to register under the Industrial Relations Act. The hon. Member for Birmingham, All Saints (Mr. Brian Walden) made the same point again tonight. But, as was pointed out last year and during the debates on the Industrial Relations Act in 1971, an alternative to registration as a trade union is already available since there is the possibility of registration of the appropriate funds under the Friendly Societies Acts. I realise that there are practical difficulties in some cases in that for these purposes provident funds have to be alienated from the main union funds, and I believe that the hon. Member for All Saints said last year that his union had run into this difficulty.

I am, therefore, aware that what I am now suggesting cannot apply or appears not to apply in every case. Difficulties of this kind highlight to some extent one aspect of the issue since in principle tax relief should not be available on funds which can be used without any form of outside supervision other than for the purposes of provident benefits. Before October 1971 entry on the old register enabled a union to qualify for the tax reliefs without such a close form of supervision, but the Industrial Relations Act strengthened the financial controls associated with registration.

The hon. Member asked me under which principle this was laid down and I remind him that the Industrial Relations Act was intended to strengthen the financial controls associated with registration. For example, under Part III of Schedule 5 all but the smallest trade unions on the register need regular actuarial reports on the superannuation schemes that they run. It is not right, therefore, to say that this is a politically motivated act. We have set up different bodies to supervise different organisation and in this case the registrar of trade unions is the appropriate body.

The hon. Member for Chester-le-Street (Mr. Radice) raised a point which might he dealt with more appropriately with the new clause 32 because it is concerned with unincorporated associations and their corporation tax arrangements. We debated this matter in Committee and on that occasion the hon. Member referred to the consultative document that has been sent out. Certainly the Select Committee on Corporation Tax recommended that we should come to special arrangements for unincorporated associations of the sort mentioned by the hon. Member. We are not trying to resist that recommendation, as the hon. Member knows. The problem is one of definitions, and we indicated to him in Committee that as soon as we can find a reasonable definition that brings in the right people and the right unincorporated associations and excludes others, we shall bring it forward. We are not trying to delay the matter, but this is an extremely technical and complicated point. The consultative document went out and we are only now beginning to receive the representations.

Mr. Radice

When the Minister says "the right unincorporated associations" does he include trade unions, because that is what I am trying to find out?

Mr. Nott

I cannot go further than I have gone except to say that the Select Committee recognised the problem. I recognise the corporation tax problem with trade unions, and trade unions are certainly one of the unincorporated associations that we have under close review as part of the review of arrangements following circulation of the consultative document.

Mr. John Gelding (Newcastle-under Lyme)

I understand the hon. Gentleman's argument relating to non-control of funds, although I disagree with it. But is he aware that not only are there general funds of trade unions but also political funds? The political funds, which can be invested, are closely controlled under the 1913 Act by the registrar. We make returns, our rules are subject to control and they meet the requirements laid down by the hon. Gentleman. Could it not be that the political funds of trade unions would be exempt from this tax?

Mr. Nott

There is nothing in the requirement of registration to which any well-organised trade union could reasonably object. Accusations that registration means a State licence to operate, or that the registrar himself writes the rules of a registered trade union, are not true. There is nothing to stop an unregistered trade union from carrying on very effectively. What the registrar does is simply to make sure that the rules cover certain specific subjects. It is a principle of the Industrial Relations Act—and I appreciate that the Opposition do not agree with it—that the benefits and advantages it confers on unions are available only to those which, by registering, accept a degree of public accountability.

The Government's position is simple. We have always maintained that the Act is a long-term measure of reform, and it is therefore too early to judge it after less than 18 months of full operation. But the Government have made it clear that they are willing to examine carefully any constructive suggestions for improving its operation. I understand that no suggestions of this nature have yet been forthcoming from the TUC, but it is aware that it may raise the matter, and I expect that it will do so during the tripartite talks on economic matters. No doubt on that occasion it will make some of the points hon. Members opposite are making on this occasion, and we shall listen with great care to what it has to say.

Mr. Brian Walden

By leave of the House, I would like to comment on the hon. Gentleman's reply which was very unsatisfactory.

I make it clear to the Government that the view of the trade unions and the Labour Party on the Industrial Relations Act is not one which can be encapsulated in which the hon. Gentleman calls "constructive proposals". Our view is that which we held of the Trade Disputes Act 1927. We shall obliterate it on our return to power. It will cease to exist. That is our suggestion for the 1971 Act.

In that context, I say to the hon. Gentleman that he is being obtuse—I will not say deliberately, although one can cherish a suspicion. If a greater degree of financial accountability had been required, the trade unions would have agreed to the strengthening of the powers of the registrar of friendly societies. If what worries the Government is that there will be fly-by-night organisations calling themselves "trade unions" and claiming tax exemptions to which they are not entitled, I make the constructive suggestion that the Inland Revenue can undertake any sort of probes it wishes into deregistered unions to satisfy itself that that is not the case.

The issue here is simple. Under the 1971 Act—a highly controversial Act—unions were given a choice. They have not broken the law by deregistering. They have deregistered not to avoid financial accountability, as the hon. Gentleman should know, but as a political act to show their bitter disapprobation of this type of legislation, which the Opposition are pledged to remove, in these circumstances, does it make any sense that they should not receive tax exemption? Simply to say that the Act is so designed that those who do not register under it do not receive the benefits that accrue from it is to give the entire case away.

11.30 p.m.

The unions concerned have broken no law by not registering. Those which have deregistered are in precisely the situation vis-à-vis the Revenue as they were in 1966, 1967 or 1968. The only difference is that the Government have changed their mind. What I am urging upon the Government is that changes which were brought about by the Act should not be given fiscal weight in Finance Bills. It is no job of the Treasury to reinforce the political prejudices of the Conservative Party in regard to trade unions, especially as on our return to power we shall restore the status quo ante anyway.

We seem to have discussed nothing today that the Government are not reviewing. I worry about what next year's Finance Bill will bring up. To shorten the whole procedure of these endless reviews, I urge again that the deregistered unions be probed in any way that the Revenue suggest to establish their bona fides as organisations of workers. I think that I can promise that they will submit to the financial accountability. They do not intend to evade that. But they should not be penalised by the existence of legislation which says that they have the legal right to deregister but that if they do they will be fiscally punished. It is blatantly party political, and it is obtuse to pretend that it is not.

Question put and negatived.