HC Deb 16 July 1975 vol 895 cc1548-56

'(1) In section 332 of the Taxes Act (exemption of income and gains of registered friendly societies other than profits arising from life or endowment business consisting of the assurance of gross sums exceeding £500 or of the granting of annuities of annual amounts exceeding £104), after subsection (3) there shall be added the following subsections— (4) A registered friendly society is within this subsection if its rules make no provision for it to carry on life or endowment business consisting of the assurance of gross sums exceeding £1,000 or of the granting of annuities of annual amounts exceeding £208.

(5) In the case of a registered friendly society within subsection (4) above—

  1. (a) subsections (2) and (3) above shall have effect with the substitution of references to £1,000 and £208 respectively for the references to £500 and £104; and
    2. 1549
  2. (b) references in this Chapter to tax exempt life or endowment business shall be construed accordingly.

(6) Where at any time a registered friendly society within subsection (4) above amends its rules so as to cease to be within that subsection, any part of its life or endowment business consisting of business which—

  1. (a) relates to contracts made before that time; and
  2. (b) immediately before that time was tax exempt life or endowment business,
shall thereafter continue to be tax exempt life or endowment business for the purposes of this Chapter.

(7) Where at any time a registered friendly society not within subsection (4) above amends its rules so as to bring itself within that subsection, any part of its life or endowment business consisting of business which—

  1. (a) relates to contracts made before that time; and
  2. (b) immediately before that time was not tax exempt life or endowment business,
shall thereafter continue not to be tax exempt life or endowment business for the purposes of this Chapter.

(8) Where at any time a registered friendly society not within subsection (4) above acquires by way of transfer of engagements or amalgamation from another registered friendly society any life or endowment business consisting of business which—

  1. (a) relates to contracts made before that time; and
  2. (b) immediately before that time was tax exempt life or endowment business,
that business shall thereafter continue to be tax exempt life or endowment business for the purposes of this Chapter.

(9) Where at any time a registered friendly society within subsection (4) above acquires by way of transfer of engagements or amalgamation from another registered friendly society any life or endowment business consisting of business which—

  1. (a) relates to contracts made before that time; and
  2. (b) immediately before that time was not tax exempt life or endowment business,
that business shall thereafter continue not to be tax exempt life or endowment business for the purposes of this Chapter."

(2) In section 337(3) of the Taxes Act, in the definition of "tax exempt life or endowment business"—

  1. (a) after the word 'has' there shall be inserted the words ", subject to section 332(6) to (9) above,";
  2. (b) after the word 'means' there shall be inserted the words ", subject as afore-said,";
and (c) at the end there shall be added the words '(read, where appropriate, with subsection (5) of that section)'.

(3) The preceding provisions of this section shall have effect as regards any year of account of a registered friendly society or branch ending after the passing of this Act (including the whole of any such year of account that ends with 31st December 1975).

(4) The Friendly Societies Act 1974 and the Friendly Societies Act (Northern Ireland) 1970 shall have effect subject to the amendments specified in Schedule (Amendments of enactments relating to friendly societies) to this Act, being amendments arising out of the preceding provisions of this section.'.—[Mr. Joel Barnett.]

Brought up, and read the First time.

The Chief Secretary to the Treasury (Mr. Joel Barnett)

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

Mr. Deputy Speaker (Mr. Oscar Murton)

With this, it will be convenient to discuss Government Amendment No. 103.

Mr. Barnett

This clause, and the amendment fulfil a Government undertaking in Committee to extend to the great majority of registered friendly societies the same increases in the limits below which their life or endowment business will be exempt from tax—that is from £500 to £1,000 in respect of gross sums assured and from £104 per annum to £208 per annum in respect of annuities—as is provided in respect of trade union provident benefits.

Historically, the "tax exempt" limits for the trade unions and the friendly societies have always so far marched in step. However, the reasons for according equal treatment are now less compelling than they have ever been before, and it would not be unreasonable to distinguish between them.

For friendly societies, what is involved is tax exemption on part or all of their life or endowment business, a business which is not closely paralleled by the trade unions but in which the friendly societies to some extent compete at a tax advantage with the industrial life assurance companies.

For the trade unions, the tax exemption is an all or nothing affair since it runs only if the trade union is precluded from assuring sums above the stipulated limits. The friendly societies, by contrast, are entitled to tax exemption in respect of their business below the tax exempt limits but may also transact business above those limits, and within certain higher limits, provided they bear tax upon it.

The tax exempt limits for friendly societies were first introduced when most members of friendly societies had incomes below the taxable level. This state of affairs no longer obtains, and the logical basis for the exemption has disappeared. The fact that trade union members also are now mostly liable to tax is less significant, bearing in mind that the provident benefit of a trade union member is merely ancillary to the other benefits he expects from payment of his union subscription, whereas the benefit from the life of endowment assurance taken out by a friendly society member is the sole purpose of the premium he pays.

Nevertheless, the Government have come to the conclusion that it would be reasonable to accede in large measure to the claim on behalf of the friendly societies that they should have the benefit of the extension of the tax exempt limits proposed for trade unions. The great majority of friendly societies are small in character: over 5,000 out of a total of under 6,000 are in fact local branches of one or other of the large "Orders". Only 41 larger societies have transacted life or endowment business on the taxable basis that I have explained. It is these societies which can be considered to come most closely into competition with the life assurance companies. But, for the reasons that I have given, we feel that it is reasonable to extend the concession which we have granted to the trade unions to the smaller societies, and I hope that this will be acceptable to the House.

Mr. Ridley

We must be grateful for small mercies, and I acknowledge that what the Chief Secretary has done meets a point which I raised in Committee. I am glad that he has seen fit to do it. However, there are some questions which should be asked.

The Chief Secretary made the astonishing statement just now that any logical reason for these concessions had disappeared because wages are now well into the taxable limit, and that one was bound to ask why there should be a tax exemption for an insurance benefit for trade unions or, for that matter, for friendly societies when others had to go through the other tax treatment afforded to life assurance policies taken out with insurance companies.

I can tell the right hon. Gentleman the reason. The reason why he put Clause 50 into the Bill was that the trade unions put it into their economic policy document under the heading "Tax Reform". Anything which is asked for by the TUC is immediately and automatically granted by this Government. But apparently they they did not read properly what the TUC said. It said that is should be both trade union benefits and friendly society benefits. The Government put in a provision only about trade union benefits because, in a way, that was almost too much. Having been put in, the Chief Secretary asks why it is there at all. It would have been better if he had studied this whole matter, rather than simply taking what the TUC said, and then worked out what help the taxpayer should give to people taking out insurance policies of all kinds, so bringing more roughly into line the treatment of those who take out policies from trade unions, friendly societies and insurance companies, so that the treatment was more equal.

There is something paternalistic about this advantage and, although I welcome it—I welcome anything which encourages people to save and to make provision for their old age—I wonder why the limits are drawn as they are and why the advantage is not available to all.

If the business is taxable, the limits are the old ones of £104 and £500. Why is this the case? Simply because the business is taxable, why should the limits be kept so low? I think that it is only right to increase greatly the limits on taxable business. The effect of inflation in reducing all the limits, both taxable and nontaxable, in terms of their real value is such as to whittle away even further the value of these exemptions.

This whole matter is in something of a mess. Now that every proposal coming from the TUC has been accepted, may we consider the effects? Can the Chief Secretary say that he will have discussions with all those concerned, that he will take a fresh look at this whole area, and that he will see whether all savings in insurance can be put on to an equal basis for all citizens without the discrimination which seems to exist in the present state of affairs?

Having said that, however, I repeat that I must be grateful for this small concession.

5.30 p.m.

Mr. Graham Page (Crosby)

I suppose that I, too, should preface my remarks by saying that I am thankful for small mercies or that I shall not look a gift horse in the mouth. However, I fail to see the distinction which the Chief Secretary drew between the trade unions in this type of business and the friendly societies. As the right hon. Gentleman said, historically the trade unions and the friendly societies have marched hand in hand with the limits set on this kind of business—the limits under which they will be exempt from tax on income from life or endowment assurance up to £500 and from annuities up to £104 per annum.

Since 1908 they have marched hand in hand and at that time the figures were respectively £300 and £52. The idea then was that a manual worker should insure for about three years' earnings. My hon. Friend the Member for Cirencester and Tewkesbury (Mr. Ridley) asked why, even at present, we are keeping the limits down to the new figures of £1,000 and £208. Why the figure was ever kept at £500 I do not know, but certainly £1,000 in 1975 is not equivalent to £300 in 1908.

The Chief Secretary seems to make a distinction. It is true that we were all rather astonished to read Clause 48 of the Bill as it was which made this distinction between the trade unions and friendly societies when, since 1908, they have marched hand in hand on these figures. My hon. Friend the Member for Cirencester and Tewkesbury raised this point in Committee. We know that discussions have taken place between the friendly societies' liaison committee and Treasury Ministers.

This rather long and niggly amendment has been tabled today. I say "niggly" because I wonder why all the business at these figures should be exempt, whether done by trade unions or friendly societies. New Clause 7 states that A registered friendly society is within this subsection if its rules make no provision for it to carry on life or endowment business consisting of the assurance of gross sums exceeding £1,000 or of the granting of annuities of annual amounts exceeding £208 Under this amendment about 5,000 of the 5,913 friendly societies registered at the end of 1973—that is, the smaller societies—will get the benefit. Why not grant the benefit to those societies which do this business, even though their rules may allow them to do business at a higher figure? I cannot understand the justification for saying that small societies should get the benefit of this amendment but large societies which are doing small business should not. It seems wholly illogical. I should like to cite as an example one particular society, namely, the Post Office Insurance Society, which works closely with the Union of Post Office Workers.

As my hon. Friend the Member for Cirencester and Tewkesbury said, there is no quarrel between the trade unions and the friendly societies in this respect and there is no quarrel between the liaison committee of the friendly societies and the Trades Union Congress. The Trades Union Congress expects the friendly societies to receive exactly the same treatment as the trade unions. In the example I have given, because the Post Office Insurance Society is a large society and even for this small business will be unable to take advantage of the amendment, the members of that society will be able to get advantageous terms—tax exemption—from the trade unions. These are two bodies which work closely together.

The trade unions do not ask for any discrimination in this matter and yet it is a fact that this amendment will apply to members of the Post Office Insurance Society if they move their business to the trade unions. The position has not been thought out.

I suppose that we should not look a gift horse in the mouth and I am quite prepared to accept that the friendly societies, through their liaison committee, have—after discussion with the Treasury Ministers—accepted this amendment. But they accepted it in the spirit of "here is something we have gained out of this Finance Bill. Perhaps we shall gain something more out of the next one".

I am sure that when the Chief Secretary replies he will thank me for not seeking to put myself on the Committee and he will regret that I am back again to face him.

Mr. Joel Barnett

I am always delighted to have the thanks of the hon. Member for Cirencester and Tewkesbury (Mr. Ridley) for any concession, no matter how small, that I move on Report. I agree with the hon. Gentleman that the situation is in a bit of a mess in that if one looks at it logically there is no ground for giving any relief at all to the friendly societies. I believe that that is the point the hon. Gentleman was making. In that sense he is right.

However, the main point made by the hon. Member for Cirencester and Tewkesbury and by the right hon. Member for Crosby (Mr. Page) concerned the comparability between the trade unions and the friendly societies. I tried to showbriefly—that there is a difference between the provident benefit funds of a trade union and a friendly society. The societies are conducting taxable business, whereas a trade union can have the benefit of the tax exemption only if it is precluded, by its rules or by an Act of Parliament, from assuring benefit above the stipulated tax exempt limits. Therefore, there is quite a difference between the two.

In the case of friendly societies the benefit is the sole purpose for which a premium is paid whereas, as I indicated at the outset, in the case of a provident benefit fund this is ancillary to the main purposes of the subscription paid by a member of a trade union.

I do not blame the hon. Member for Cirencester and Tewkesbury for having a little fun in relation to the request by the TUC. That request, however, stemmed from the Flixborough disaster, as a result of which the trade unions concerned would have been unable to pay benefit of the size they wished to the widows involved. I should have thought that this would be recognised—I am glad to see the right hon. Member for Crosby nodding—as a good reason for allowing the request to increase the size of benefit to be paid.

Let us remember what trade union provident benefit funds are paid for. This is often misunderstood, although I am sure not by the hon. Member for Cirencester and Tewkesbury.

Mr. Ridley

If the Chief Secretary had been killed at Flixborough, on that unfortunate day his widow would have been compensated by payment from an insurance company which had paid the full rate of tax. It is rather inequitable that one group of people can—however sad and tragic the circumstances—obtain a tax relief which is not available to others.

Mr. Barnett

In fairness, the two things are different. We are talking about a man who has paid a subscription to his trade union, perhaps for many years—certainly in this case all his life—and the union wishes to pay a benefit to that man's widow. That, indeed, is one of the major purposes of the provident benefit fund. Therefore, the clause is not unreasonable—indeed, in Committee hon. Members accepted the clause extending the size of benefit that could be made.

The hon. Member for Cirencester and Tewkesbury asked whether I would have discussion on the matter. I had discussions. As it happens, I studied the matter quite closely before going into the question of both the trade union benefit, and increasing that relief, and this clause in relation to friendly societies. I met a deputation from the friendly societies. Arising out of that deputation and the discussions I had with them, I recognised the case for doing what has been done in the new clause, the schedule and the amendments.

I think that both hon. Gentlemen wanted me to go further and to exempt the lot. But that would be to do too much. I think that this is a very reasonable new clause and schedule which will be of benefit to a large number of smaller friendly societies and their members. I ask the House to accept it.

Question put and agreed to.

Clause read a Second time, and added to the Bill.

Forward to