BENEFICIAL LOAN ARRANGEMENTS (Hansard, 15 July 1976)

§ Mr. Robert Sheldon
I beg to move Amendment No. 93, in page 41, line 5, at end insert— '(6A) But on the employee's death—

(a) a loan within subsection (1) ceases to be outstanding for the purposes of the operation of that subsection; and

(b) no charge arises under subsection (3) by reference to any release or writing-off which take effect on or after the death'.
The amendment follows our undertaking to accept the principle of ensuring that when an employee in receipt of a cheap loan dies, the charge to tax in respect of the benefit he has been receiving from the loan comes to an end. If the loan is waived on or after death, there will be no charge to tax as a result of the waiver.

§ Mr. Robert Sheldon
I beg to move Amendment No. 94, in page 41, line 35, leave out from "year" to "and" in line 38 and insert 1978–79 and subsequent years; but for that year and 1979–80 the cash equivalent under that subsection instead of being the amount arrived at by applying Part II of Schedule 8 is that amount reduced by half. The amendment phases the introduction of the charge to tax on cheap loans in a way that was represented to us. I think that it will meet with the approval of the House.

§ Mr. David Howell
We are dealing with the sort of loan that is taken out by tens of thousands of people. For example, commuters often get an interest-free loan for a season ticket. There are employees who get a loan for furniture when they first get married. Others may get a loan to tide them over especially difficult marital circumstances. Many of us have constituents in such positions. Those who have loans for season tickets to commute to London every day are to be found in their thousands in certain areas. They have been under threat from the Bill, which would have imposed 1084 an additional tax upon them on the difference between the zero or low interest they were paying and the market rate of interest as calculated in a complicated and elaborate schedule.
We argued upstairs in Committee that this was a widespread additional impost on people who were already hard-pressed. The Government then agreed the small concession that the first £50 of interest should be disregarded. At an interest rate of 10 or 12 per cent., that would mean a loan of about £500 down to £350—about the price of a season ticket in many of the commuter areas. That might surprise some Labour Members below the Gangway, but perhaps it did not surprise some of those who live in commuter areas. I am referring to the electors of Thurrock who did not succeed in getting out to support the Labour Government today, many thousands of whom stayed at home or switched to other parties.
The Government's proposal was an attack on a great number of people, and the additional concession here is obscure. It certainly does not meet the worries of a large number of people. For the first two years—for 1977–78 and 1979–80—the cash equivalent is reduced by half, but that still leaves the de minimis provision of £50. It still means a liability for tax on the full amount.
The other worry is that we have still no provision to meet the transitional problem. Perhaps the Financial Secretary will explain why in a case where a person finds he has incurred interest of £51 the full amount is chargeable to tax, whereas someone with £49 gets away with it. Will there be proper transitional arrangements? There appears to be nothing to help those people and there is a great deal in the Bill to damage them. I hope that we shall have a further explanation of what the Government have in mind to meet this important point.

§ Mr. MacGregor
Although we have had two minor concessions on the clause, it appears that the Financial Secretary has not taken proper account of many of the persuasive arguments put to him in Committee.
I have two worries on these provisions. The provision which the Minister announced in Committee involving the first £50 of notional interest does not meet legitimate worries on the matter. Surely 1085 it would have been more sensible to say the first £50 applies to everybody. I would have liked to see it higher. I think that a figure of £100 would have met all the problems of season ticket loans which are a legitimate way of trying to help people in the London area. But there is something strange in people being excluded from Clause 61 if the notional interest goes up only to £50, if thereafter they will meet the full brunt of Clause 61.
The second point relates to the transitional period in unscrambling loans. The rather marginal concession given in the amendment does not deal with the inconsistency in the treatment which the Government has shown as between the transitional arrangement and the tax relief on loans under the Finance Act 1974 and this arrangement. In that Act the transitional arrangement enabled people to unscramble large loans. We are now in a constructive situation in which some people will continue to obtain tax relief on loans to 1980–81 but will find in regard to notional loans that a different tax treatment will aply to them.
The whole of this shows therefore the inconsistency of the Government's treatment of the fringe benefit clauses. For some reason it has been said that airline employees who are able to draw a benefit in kind to enable their families to go on holiday at cheap rates should not have to pay the tax which the Government propose in the Bill. But people who have loans from their employers to pay for such things as season tickets are given only marginal relief which will not meet anything like their main problems. No further concessions have been made to them by the Government.
It is clear therefore that where people have been able to bring sufficient pressure to bear upon Labour Back Benchers, and where they are sufficiently strong in numbers the Government have made concessions. In other cases they have not. We welcome the Government's amendment to meet some of these points we made in Committee, but it demonstrates the inconsistency of the Government's approach and it does not go far enough.

§ Dr. Alan Glyn (Windsor and Maidenhead)
The amendment deals with a matter which greatly affects my constituents. The crux of the matter concerns 1086 the loan for the season ticket. The cost of travel has become an extraordinarily difficult problem. It has risen enormously. For many of my constituents it is more than £350 a year. The complicated system that the Treasury has worked out will mean that the £50 is far exceeded. The Government are particularly insensitive to the difficult problems which arise from the endeavour of the employers to help employees who have to pay for expensive season tickets.
For the Government to draw the line at £50 is unjustified. It is wrong that this loan should be consolidated with other loans which employers might give. It should be treated as a separate entity We are grateful to the Treasury for giving way on the point about concessions which are difficult to assess. We believe that loans for season tickets should be exempt since they are part of the cost which employees have to pay to get to work. I hope that the Government will consider such an exemption. It will be easy for the Revenue and the recipient to work out the amount of interest payable each year. I hope that the Minister will be able to assist the millions of commuters who come into London each day to do a first-class job of work.

§ Mr. Robert Sheldon
The hon. Member for Guildford (Mr. Howell) and his hon. Friends made the same point about the de minimis exemption of £50. As a consequence of charging the full rate of tax on all the loans involved from a common date only half the benefit will be taxable in respect of loans made after 1974 and the effective de minimis exemption will be doubled until 1980–81. The effective de minimis exemption is equivalent to £100 for this period. That covers to some extent the point made by the hon. Members for Windsor and Maidenhead (Dr. Glyn), Norfolk, South (Mr. MacGregor) and Guildford.
Marginal relief is a problem more in appearance than in substance. The employer will make a loan of £50 or, in the transitional period £100, and instead of charging a reduced or nil rate of interest he can charge the official rate on that part of the loan which exceeds the amount not covered by the exemption. The employee will be able to get 1087 the whole de minimis exemption free of tax without the problems of marginal relief.

§ Dr. Glyn
Does the Minister appreciate that it costs a commuter well over £350 a year for a season ticket, and he will be brought into the tax bracket in spite of the exemption?

§ Mr. Sheldon
The hon. Gentleman may not appreciate that we are talking about the interest on the loan and not the amount of the loan itself. What I have said meets his point.