GENERAL PROVISION CHARGING BENEFITS

HC Deb 17 May 1976 vol 911 cc1049-92

The Deputy Chairman (Sir Myer Galpern)

The next amendment selected is No. 77, in page 32, line 37, leave out 'directors or'.

With this we are to take the following amendments:

No. 76, in page 32, line 37, leave out from 'employed' to end of line 38.

No. 97, in page 33, line 16, leave out '1977–78' and insert '1979–80'.

Mr. Nott

I think it might be for the convenience of the Committee if we held this debate upon the Question, That the clause stand part of the Bill, since the purpose of having these debates on the Floor is to have a relatively wide debate.

The Deputy Chairman

That is acceptable if it meets the convenience of the Committee.

Question proposed, That the clause stand part of the Bill.

Mr. Nott

We now come to that group of classes which modifies, in some cases codifies, and to a large extent confuses, a huge area of tax law and practice, part of which is statutory, part of which is non-statutory, concerning benefits in kind. I make it clear that our main debate on all the clauses affected by this Chapter will take place in Standing Committee where we shall have the opportunity and the time to examine each proposal in detail. Tonight, in what has to be a relatively short debate, we shall have to concentrate on general principles and the impact of them upon hundreds of thousands of unwitting, unknowing, unsuspecting citizens who will one day receive their pay slip and find that once again the Government have lowered their living standards by stealth and misrepresentation.

What are the facts in this area of benefits in kind? I hope that people will not be misled into believing that if they are earning less than £100 a week this will not apply to them. If they believe this they are completely deluded. The increase in taxation embodied in this clause, often quite savage in its effects, will almost certainly reduce the living standards of hundreds of thoustands of individuals, many of them those who have already suffered most under Socialist taxation.

Those earning 50 per cent. or less above the national average wage—I am talking of people on £80 and £90 a week —will suffer the highest marginal rates of increase in the tax they pay under this clause. Once again it will be the middle income groups who will suffer, those whom the Chancellor said, in his Budget speech, he wanted to help. It is they who will be hammered into the ground. I do not know how many travelling salesmen there are in this country but there must be hundreds of thousands of them. There is a whole army in the middle income groups who necessarily use their cars for their work. There are transport drivers, airline employees generally, commuters borrowing small sums of money to fund their season tickets, white collar workers in company health schemes making small contributions to those schemes, men and women earning less than £100 a week, struggling to buy their own homes with the help of their employers, railway employees, people accepting lower salaries than normal to work for charities—and probably in a large number of cases they will be paying extra tax even though they are earning £1,000 a year working for a charity and occupiers of accommodation in universities and teaching colleges: all of whom are brought within the provisions of this clause.

I am sure that the vast majority of these people have not the remotest idea of what is to hit them. All of them, either because this legislation is so badly drafted or because their salaries are £80 to £90 a week plus benefits—because the benefits have to be added into the salary to arrive at the limit of £5,000 a year—will come within this clause unless they are one of the privileged few singled out for special treatment.

Who escapes? Apparently, no longer the miner receiving free coal. I think we shall need some clarification here. There are a number of coalface workers earning more than £100 a week—not a great number, but quite a lot. I imagine that they will now have to pay tax on their free coal. If there are miners living in NCB houses—and I believe there are a few NCB houses left although most have gone to local authorities—they will some times be occuping those houses at less than the economic rent. Such people may find that they have to pay a tax on the benefit of occupying those houses.

The miners working at the coalface earning over £100 a week, or even those earning around £90 a week, because the benefit is added in as well, will find them selves paying tax for the first time. Apparently, people newly converted to Tory policies, like Mr. Scargill and other trade unions leaders who were excluded from paying tax on benefits in kind, have been brought in this year, along with a number of others, to make it look acceptable.

Who escapes the provisions of the clause? None other than the author of this chapter in the Bill, the Chancellor, the man who chooses to live above the shop at No. 11 Downing Street. Let us not say that that is where the Chancellor works. He does not work there. He works around the corner in Whitehall. Because he drives around in a pool car, because he is what is known as a representative occupier, he will not come within this legislation.

That brings me to the whole concept of the representative occupier. I forget what thy; Chancellor's salary is as a Cabinet Minister, may be £12,000 a year. It is a substantial salary. The right hon. Gentleman is no more necessarily required, as a representative occupier, to live at No. 11 Downing Street for entertaining, when his office is in Whitehall, than a director earning £3,000 a year in an export company who feels it necessary to have a flat to entertain foreign customers. Both are performing services to the community of great importance and yet one is treated differently from the other.

Why should the director of a small company, may be a company in liquidation, a director on a salary of £1,000 a year, just because he is in title a director, be taxed on his benefits and not his employee who may be earning the average national wage of £60 a week? Ministers say that it is because a director can fix things to benefit himself. We need to have a much better excuse than that.

The concept of a representative occupier has now become an utter fiddle. It is used to discriminate between one job and another, one person and another, without any due regard to equity. It is no use the Financial Secretary saying that this principle has long existed in tax law. That is true, but it is Socialist tax policies that have rendered it now both disgraceful and unfair. It is the case that if Ministers had to pay tax on benefits they would certainly not be able to do so out of their taxed income. Therefore Ministers are not being brought in, but directors are being brought in, whatever their salary is. There is no longer any reason for the concept of the representative occupier, which, perhaps, made sense when tax rates were acceptable and reasonable. May be there was justification for it then. To single out particular jobs in this way now is no longer acceptable.

8 p.m.

Then there is the question of cars. Why should a large company with the capacity and financial resources to provide a senior employee, a rich director, with a car from a pool be treated differently from a small company which cannot afford to run a car pool? Why should a rich director, with a Rolls-Royce, for example, and earning £15,000 a year because he is in ICI or Shell or some other big company and getting a pool car, not pay tax when the employee of a small company which cannot afford a car pool is to be taxed?

Indeed, why are Ministers deemed to have pool cars? The Prime Minister and the Chancellor of the Exchequer do not change their cars. They use the same car and the same chauffeur every day. Such a car is no more a pool car than that of a travelling salesman. Perhaps this discrimination is based on tradition, but the Government have chosen to codify the law, so they must say what justification they have for doing so.

Many hundreds of letters have come to us on this subject. One says:

I am employed, as a management consultant. by a large group which has some two dozen factories in the UK. These are widely scattered, being typically, in Manchester through to the South Coast. I spend all my working time at and travelling between these factories. I use a Granada 3000 company car but also own and run a car of my own because my family would otherwise be immobile except at weekends. On average over a year my business mileage is approximately 19,300 per annum and my private mileage using the business car approximately 2,700 per annum. At present, the 'benefit' for taxation purposes is agreed between the Inspector of Taxes and myself. According to my understanding of the proposal I should be liable to be taxed on a benefit' arbitrarily assessed at perhaps £600 p.a. Under such circumstances, I should, in effect be subsiding my employer. I can read out a hundred letters of that kind from middle management, middle income people, working in British industry.

Let us look at how the car tax will affect the average chap on £90 a week. First, let us take the case of a man who is a successful salesman earning £90 a week, with a company car, to be assessed now at £310 per annum against the amount of, say, £50 which he has been paying under the present arrangements. Let us say he also has a small loan from the company worth about £50. Assuming that he has other taxable fringe benefits and a small sales incentive scheme, which must be right for salesmen, a few canteen lunches and a small medical health insurance, in all amounting to no more than £290 a year, his total emoluments for tax purposes will be £5,150 instead of £4,500.His additional taxable income will be £650, and at the basic rate of 35 per cent. that will amount to £227 of extra tax, or £4.40 a week.

That is more than he has been given by the Chancellor and the TUC under the £4 pay rise this year. Not only will his standard of living this year be further eroded by the cost of living biting on the tax allowances which have not been raised to compensate for inflation, but, in addition, on his car, which he needs for his business as a salesman, he will be paying more than the extra £4 a week in his pocket which is what the Chancellor is allowing him under the incomes policy. So much for the Chancellor's determination to help middle management. This man will be much worse off.

I hope that Labour Members representing constituencies with car and car component factories will note the impact of this measure not just on their constituents but on the sales of British cars, because the major market for British cars is among business users. Relatively speaking, far more foreign cars are sold to private owners. Business cars generally come from British manufacturers. Thus, this move gratuitously damages the British car industry, which seems a somewhat strange way to proceed.

Then there is the case of the airline employees and railwaymen. My right hon. Friend the Member for Spelthorne (Mr. Atkins), my hon. Friend the Member for Uxbridge (Mr. Shersby), my hon. Friend the Member for Windsor and Maidenhead (Dr. Glyn), my hon. Friend the Member for Chertsey and Walton (Mr. Pattie) and my hon. Friend the Member for Surrey, North-West (Mr. Grylls) have received hundreds of letters from airline employees. The great majority of airline staff and a far greater number of railwaymen than is realised will become taxable on travel for the first time. The cost of their railway and airline tickets will be added to their salaries to arrive at the limit of £100 a week. If railway employees now on £4,000 to £5,000 a year are taxable now on their journeyings on the railways, the majority of them seem blissfully unaware of it. They are not being taxed on those benefits now. With airline staff, not only will foreign travel be put beyond the reach of many of them but the tax will hit them in an unfair way.

Dr. Alan Glyn (Windsor and Maidenhead)

In the airline staffs' case, it is almost impossible to evaluate what this concession is worth because such a person has all sorts of restrictions, such as not being able to come back when he wants to.

Mr. Nott

I agree. If an airline pilot wishes to take advantage of the benefit which has traditionally been available to him in working for an airline, he will not know, unless he goes to an accountant or works it out himself, precisely what his tax commitment will be.

In the airlines it is the practice to give this concession on a graduated basis whereby the employee who has been with the company for a long time benefits more than the employee who has joined the week before, which seems fair. I want to quote from another letter from an airline employee. He says: If the Chancellor's plan goes ahead I shall, after nine years with British Airways, he paying about five times as much for my 'cheap' travel as somebody who has been with the airline for just one year but whose salary is less than £5,000! Pilots are not alone in facing this problem. There are many other staff, most of whom have worked for the airline for a very long time who will be forced to travel on package tours with other airlines while 'new entrants' employees can travel around the world at 10 per cent. of the normal fare. What of season tickets and loans? The commuters are among the most badly hit sections of the community—perfectly decent, middle group people commuting to work, whose standard of living has been slashed by Socialism already. They are to be taxed on the loan which is increasingly being given to commuters to buy their season tickets, some of which now cost £600 to £700 a year.

Other employees have some small assistance to enable them to buy their own homes under loan arrangements. Why is it that people who have some assistance from their employers in the form of cheap interest loans are only being given one year in which to adjust their arrangements? Where people's mortgage commitments are suddenly affected, in some cases fairly substantially, why cannot they be given a transitional period in which to reorganise their affairs'?

Why cannot we have a de minimis arrangement in regard to these loans? It cannot be sensible for the Revenue to inquire into a small loan of £50 or £100 given to some young lady living in Braintree by her employer to enable her to purchase her season ticket.

This is a matter of major importance, and the Government Benches are empty as usual. Here we are talking of hundreds of thousands, possibly more than a million, of people who do not realise that the Chancellor of the Exchequer has dramatically increased their tax, in spite of what he has said at the Dispatch Box.

As for railway employees, I have so many letters from people all over the country that I need a trunk in which to keep them. The writer of this letter says: My present management position carries with it a free travel concession". This was the critical factor concerning this person, who was working in Birmingham while continuing to reside in Bletchley. His letter continues: Now the Chancellor of the Exchequer proposes to change the rules, and the consequent effect upon the long distance commuters employed by British Rail can only be viewed with horror. I shall be faced with an additional tax burden based upon the cost of the season ticket between BletchleyandBirmingham—say £900–£1,000—together with an assessment in respect of general travel. The effect of this legislation upon myself and many colleagues will be crippling, to say the least. I consider it an appalling injustice that Government action should suddenly cause people to be deprived of legitimate expectations about their economic future. I shall quote one more letter and then leave the railwaymen till we get into Standing Committee. One of the things said a second railwayman, a Mr. Barber—[Interruption]. This is a Mr. Barber from Brentwood. Lord Barber had sufficient political judgment not to throw this kind of legislation to the House of Commons. I can assure the Financial Secretary that when I was Lord Barber's junior Minister and we went through the examination of benefits in kind, Lord Barber, as he now is, had more political judgment and nous than to put this sort of thing to the House of Commons.

The letter reads: One of the things in the speech to which I am now increasingly taking exception is that British Rail employees, with their privilege rail facilities, are being classed with other employees who have been specifically accorded, to use his expression, 'perks' as a device for beating the pay limits. This is a misrepresentation in so far as railway employees are concerned, as they and their predecessors have received these benefits from a period dating back to the nineteenth century. Where does all this take us? Most of the people running the charities in this country are, funnily enough, maybe through a quirk of the tax law, designated as directors of the charities. I have a letter here from Age Concern, and a great mass of letters from charities all over the country. Directors of charities are usually more concerned with helping its charity than with their own salary, but these people will be taxed on benefits in kind, even if their pay is only £10 a week, because, according to the tax legislation, they are very often directors.

8.15 p.m.

Then there are all the people living in universities and teaching colleges. There are literally hundreds of people occupying accommodation in the colleges and universities of this country. As the right hon. Member for Down, South (Mr. Powell) will know, in our college, some of them are fairly ancient—Fellows of Trinity College, Cambridge. There are colleges at Oxford which are specifically charities, and, therefore, by reason of the tax law, even if some of them are Fellows earning well below the £5,000 limit, they will be taxed on their accommodation as a benefit in kind. Will they, I wonder, be classed as representative occupiers?

I know one don at my old college who for years had a room in college but who incidentally neither had lectured nor been to anything at all for 60 years. He is a well-known figure in my college. I am taking an extreme example, and may be that is not a good one to take, but throughout colleges, universities and polytechnics in this country there are people who will find their incomes sadly eroded by this measure.

Why do the Government choose to bring forward these clauses at this moment? It is really a grave error of political judgment. Of course, the attempt of the Chancellor of the Exchequer to suck up to the trade union bosses by attacking management perks must have made sense when he first embarked on it, but what will happen in practice? It will rebound mainly on people earning £80, £90, £100, £110 and £120 a week. Those are the people who will suffer, not those in higher-paid employment as normally understood. It will not be the rich directors who will suffer, but ordinary men and women, the middle managers, the commuters and those in jobs which from time immemorial have carried certain benefits.

Of course, the Financial Secretary will no doubt say, and it is true in theory, that in equity all benefits should be taxed equally with income. That is an indisputable fact. Clearly, it is not right in theory that benefits should escape taxation and that income should not. The theory of it is clear. All benefits should be taxed. However, we have to accept that in practice it is impossible, without half the population becoming tax inspectors and the other half engaged in submitting tax returns, to tax benefits right down to the bottom of the scale. It cannot be done. No doubt the Socialist millenium would be where half the country, all Socialists, were bureaucrats drawing inflation-proofed pensions, and the other half were all living on social security benefits.

We have for practical reasons a P11D limit, and it has become ludicrously low. The limit has become indefensible. It is true that the Government raised it last year, but the £5,000 limit, if we include benefits, is now bringing in millions of people, and the Revenue will never cope with the problem. The situation is just mad.

People are getting sick of the Revenue, with its increased powers. On the last group of amendments we spoke of the Revenue's intrusion into people's lives. The Government are presiding over and encouraging the collapse of that trust between the Revenue and the taxpayer on which the whole system depends. Anyone who, as the Financial Secretary has done, answers letters from Members of Parliament complaining about the practices of the Chief Inspector of Taxes will know that there is growing concern among ordinary people at the way in which the tax inspectors are pursuing some people.

I think that the Chief Inspector of Taxes branch is absolutely admirable. I believe that the 80,000 people working in his branch are, on the whole, men of the highest integrity and honesty; they are decent people. But I am getting concerned—I say this not with any wish to criticise particular individuals as such—with Somerset House.

The Government and the Financial Secretary are putting up Revenue officials more and more to preach Socialism in Select Committees. I sat for the first six sittings on the Select Committee dealing with the wealth tax. To some extent it was due to the questions the officials faced, but Revenue officials were actually having to preach Socialism in a Select Committee of the House of Commons, and I do not think that is a good thing at all. Some of them are talking Socialism privately at seminars. I would not say that if I could not name names. More and more Revenue officials are being drawn into the political process, and nothing but harm can come of it.

Mr. Cyril Plant is not a Revenue official but he wants less tax evasion; but he can help in that resolve by keeping his mouth shut in the Sunday newspapers. That is the best way that Mr. Cyril Plant can help. If, as I believe, he is the chairman of the TUC this year, he may want his members to barge into people's homes, remove their documents, invade their privacy, and tax them till the pips squeak, but in the end this will lead only to more and more disrespect for the Inland Revenue, and the Government, in the end, will not be able to collect the taxes which ordinary decent people are paying, have paid and, I hope, will continue to pay without attempts at evasion.

I return finally to the impact of these clauses on British industry and management. I quote a letter from the chairman of the Engineering Employers Federation: Our member companies already experience great difficulty in ensuring adequate remuneration for their senior executives and middle management which is commensurate with the responsibilities which they bear. It is now accepted that executive staff in British industry are generally remunerated at a level well below that of their counterparts elsewhere—that there is a significant loss of high quality professional and managerial talent through emigration. The additional taxation burden which executive staff will have to bear on, for example, the provision of cars and of loans will add a further significant disincentive to the pursuit of careers in manufacturing industry. We have arrived where? We have here a thoroughly bad clause and an ill-thought out piece of legislation which brings some benefits into tax. Probably there are many others which will be left out. As a result of what is proposed, a whole panoply of new benefits will be invented. I spend most of my time around the environs of Parliament, but I have heard of at least six proposals for avoiding the penal tax on cars.

More and more straightforward taxpayers will by necessity, as a result of this kind of legislation, be turned into tax avoiders. As the Financial Times said today: In attempting to go for overkill and by elaborating these tax rules in legislation it is likely in large measure to be counterproductive even for the tax men. Instead of generating more tax revenue it is likely to provoke an increasing number of consenting taxpayers into militant loophole-seekers. I can tell the Chancellor in his absence, as the pound sinks below $1.80, that some of us are sick of Mr. Cyril Plant and those union leaders who want to fight their miserable class war against decent, patriotic, taxpaying citizens. We are sick of them. We are sick of the Government. When we get into Committee upstairs, we shall tear these clauses to shreds.

Mr. Michael Shersby (Uxbridge)

On behalf of thousands of my constituents who work for the airlines at London Airport, I wish strongly to oppose the provisions of this clause which make changes in the rules for taxing the travel concessions provided by airlines to their employees and their dependants.

Although the Bill provides that the benefit relates to those in so-called higher employment earning £5,000 a year or more, in practice all staff of British Airways and other airlines are potentially affected because the start point includes the cost of air tickets. It means, for example, that an employee on £4,600 a year who enjoys staff travel concessions of, say, £500 a year will, if this clause is passed, now be taxed.

I regard this as a mean and penny-pinching new tax which will discourage hard work and initiative. It is a piece of typical Socialist tax legislation designed to make the pips squeak out of my hardworking and dedicated constituents who do so much to make our airlines the best in the world.

It has, after all, been common practice for many years for employees to receive the products of their firms at some concessionary price or even free. There are numerous examples which include shops allowing discount to shop workers, miners receiving free or concessionary coal and homes, and car workers receiving cheap cars. It is common practice for the airlines to offer travel concessions to their own workers and to others in such a way that does not impair the commercial interests of the airlines.

The means by which the concession is achieved is to ensure that only if there is no prospect of a seat being purchased by a commercial customer will it be available to an employee. In British Airways, for example, the concession—and it is important to remember that it is a concession and not a contractual entitlement—is frequently restricted or suspended. It is governed by a series of priorities generally related to length of service in which British Airways workers have a degree of preference over others to whom the airline also makes the facility available.

In practice, the facility is subject to load which means, first, that the employee passenger will be carried on the flight only if the seat would otherwise have been left empty; secondly, that he may be offloaded at any intermediate stopping place to make way for a fare-paying passenger who has booked a seat on the flight or who for other commercial reasons the airlines wish to carry; and, thirdly, that there is no assurance that return travel will be available.

It means that there is a degree of risk. There is the possibility that at any stage of the journey the employee passenger may be separated from those with whom he wishes to travel. He may have to bear the cost of making alternative travel arrangements or bear the unforeseen accommodation costs. Are these to be tax-deductible expenses if the new clause is passed?

Employees accept these conditions because they understand the nature of the business in which they work and because the cost is low and reflects the limitations imposed. Only in a limited number of instances is the concession allowed to be made on what is called a firm basis. This mostly occurs in relation to and in recognition of long service to the airlines. The effect of all these conditions is that the travel concession is infinitely less valuable than any type of air travel available for purchase by members of the public.

There is another vitally important aspect of this concession which is of interest to the House and, I hope, to the Financial Secretary. It is the fact that British Airways alone expects to derive an income of some £5 million in the current year from concessionary travel to which its staff and others are entitled. This is an important aspect of British Airways' income. It is a net gain because, unlike employers who provide their employees with cheap cars or even cheap rail travel, the airline would otherwise forgo completely the income derived.

There is no doubt that thousands of my constituents and those living in the constituency of my right hon. Friend the Member for Spelthorne (Mr. Atkins) and elsewhere are attracted to work for the airlines because they are interested in travel. Not only do they enjoy the excitement of working for the airline but, in many cases, they endure long hours with frequent time changes, noise, fumes and the burden of providing a 24-hour airline service. It is quite wrong that they should be taxed on this small travel concession which is, in any case, generally related to length of service. To tax the concession strikes at the roots of the policy of encouraging employees to remain in the airline's services and give it the benefit of their accrued experience.

[MR. MICHAEL ENGLISH in the Chair]

8.30 p.m.

Just let the Financial Secretary remember on the next occasion he flies with British Airways that he is trying to tax the hard-working engine fitters, pilots, stewards, stewardesses or baggage handlers who are giving of their experience to make his journey possible in safety and comfort.

As is so often the case, other countries treat their employees very differently. We do not find the Americans, Canadians, Australians, French, Belgians, Spanish, Italians, Swiss, Dutch or Irish exacting this miserable tax from their airline employees. The only country of which I know which taxes the benefit is Germany, and the amount there is trivial—5 per cent. of the applicable fare within Germany and 10 DM. or 30 DM. if the travel is respectively within or outside Europe.

I say to the Financial Secretary that he should drop the ridiculous idea of taxing this benefit. Let us see the Government start to encourage employees who work hard instead of penalising them. Let the Government say that this small concession, which is hard earned and related to long and devoted service, will receive encouragement and not be just another complicated and thoroughly objectionable paragraph in the next tax demand.

Mr. Toby Jessel (Twickenham)

Like my hon. Friend the Member for Uxbridge (Mr. Shersby), I have many employees of British Airways and other airlines living in my constituency. Like him, I have also had many letters on this subject in the last few days, reflecting the indignation felt by these people at this new impost they have to bear.

I regard Clause 52 as an attack on people who have the skill, luck, energy or drive to earn the not very princely sum of £100 a week or even less and who receive modest fringe benefits. This tax on them is motivated by jealousy and hatred. Most occupations have some fringe benefits. Mention has already been made of miners' coal, railwaymen's travel, the free flats and cars available to some Ministers, and the inflation-proofed pensions for which civil servants pay no contributions. In addition, staff at many shops are allowed discounts on their purchases, and bank employees can often obtain cheap loans for housing.

Airline staff can enjoy travel at a substantial discount, but this cheap travel is available only on very unfavourable conditions. A constituent wrote to me: The facts are these; we have a concession to fill a seat, that would otherwise fly empty, on journeys to and from London, at 10 per cent. of the published fare. We may be offloaded en route if the aircraft fills up, we do not know for sure on which day our holiday will start, and have to return early, to ensure we do not get stuck overseas. I have lost several days of holiday and had the uncertainty of travel spoil the start and end of the holiday. If we are to be taxed, I will certainly not pay the difference, the airline will lose my 10 per cent. and the taxman gain nothing. Another constituent, whose wife also works for British Airways, wrote: When I came out of the Navy, I joined Civil Air Transport because I wished to travel. For this reason, I and most employees accepted lower wages than they could have found else-where for like responsibility. At 15 years and at five year intervals thereafter. we are offered free trips as a recognition of long service. My wife and I have earned six `free trips' which we have saved to use in my latter years of service. We wonder if it would be possible for you to find out if the free trips we have already earned can be used after next April without them being taxed. If they are liable to tax, we and thousands like us who work for British Airways will have to crowd onto aircraft during the remainder of this year or lose them." I shall be writing to the Financial Secretary on this point in the near future, but I hope that he will give a clear answer this evening. I support the amendment.

Mr. David Mitchell

There are a number of curious aspects of fringe benefits which I shall draw to the attention of the Fnancial Secretary and upon which I shall ask for his guidance.

First, I accept that there has to be a declaration of benefits for someone with a salary above a certain fixed figure. The figure is now £5,000, and my hon. Friend the Member for St. Ives (Mr. Nott) has referred to it as being too low. But if it is accepted that £5,000 is appropriate, why is it that the director who is earning less than £5,000 is singled out to be put into a special unprivileged position? What is it that he has done? I recognise that he may well have shown more guts, energy and initiative than many others. He may well have founded a business and provided employment for others. That, of course, brands him as someone who is to be the recipient of epithets such as a profiteer, a capitalist, a blood sucker and all the rest of the Socialist claptrap. What I do not understand is why that person should be picked out by the Finance Bill for an additional disincentive.

The Government propose that those who have a company car should be taxed, first, on a standard assumed mileage. They are then to be taxed on the size of car that they have. This is to assume that the style and size of car is entirely a matter for the employee who will have the tax levied upon him. I think that the Financial Secretary will agree that it would be grossly unfair that an employee who wanted to have a Mini, and who would be taxed on a Mini, but who has to have a large car, should pay a greater rate of tax when he does not derive any benefit from it. For example, does the sales director of Jaguar, who goes to London Airport to collect the proprietor of a large hire-car company from Germany with the hope of obtaining a major export contract, use a Mini or a Jaguar? He will be taxed on a Jaguar, but for his own financial income it would be reasonable for him to settle for a Mini.

Mr. Norman Tebbit (Chingford)

Has it occurred to my hon. Friend that there are two sorts of salesman? There arc those who sell small things and those who sell large things. The chap who sells small things may well use a Mini, but the chap who has the misfortune to sell large things may be required to have a large station wagon in which to carry them about. As he is selling large things and using a large vehicle he will be taxed accordingly.

Mr. Mitchell

I was about to make that point. Let us consider the position of the managing director of a firm of City money brokers who goes to collect one of the gnomes of Zurich at London Airport. Does he use a scruff little Mini or does he use something that is reasonable for the status of the firm? If the gnome is met by someone in a scruffy little Mini he will think "This outfit is not worth very much". The pound will then go not below $1.80 but below $1.

What about the farmer who requires to have not a Mini but a vehicle in which he can put a sack of potatoes or a sack of corn when he wants to visit a far part of the farm? Is he to be taxed on the Land Rover rather than the Mini?

What about the wine merchant—perhaps I should declare an interest at this stage—who requires an estate car so that he can turn down the rear seat and load the vehicle with orders for delivery to his customers? As my hon. Friend the Member for Chingford (Mr. Tebbit) said, what about the commercial travellers who happens to travel in a large commodity? What about the small builder who uses his car to transport his tools and a bag of cement, and perhaps four men, from one job to the next? The fact is that it will be grossly unfair for the benefit to be charged in the way which the Bill describes.

Secondly, the mileage is assumed to be a standard one on which the beneficiary will be assessed to tax. There are wide differences in the mileage used. It may well be that a man with a second car which he uses for his personal use and with a company car which he uses basically for the company's business will be assessed to tax on exactly the same scale of personal use as a man who has no second car and who uses the company car for a good deal of pleasure motoring for himself. That, again, is grossly unfair.

Then there is the question of garaging the car. If the car is garaged at the employee's home, that is the heinous offence because that then makes it definitely a benefit for him. What if it is garaged at the company's business premises? I can only ask the Financial Secretary to put himself in the position of the finance director of a company in London. What on earth does he do with 25 cars that he has somehow to garage in the City of London? That will be an absolute bomb of expenditure for him unless if it is undertaken, to the vast relief of the finance director, by the employees, who take the cars home, who are responsible for looking after them and for keeping them clean and seeing that they are in decent condition when they come back to business the next day.

Next, there is the question of the pool car. This is a fundamental problem. For the pool car there is no charge. The logic is that this is a car in which there is a constant business use and not a personal benefit.

I draw the Committee's attention to the position of the small business man. The small business man in general is somebody who lives, eats and sleeps at his business. He may well live over the shop. If he has a vehicle, he will inevitably use it for deliveries, for collecting supplies, and for one thousand and one other things. That type of person has very little in the way of pleasure outside his main motivation of building up his business, with the intention—except for this Government—of passing it on to the next generation.

The people who run small businesses—partly for pleasure, and partly for a living—do little else. I could take the Financial Secretary to a hundred such businesses—50 in my constituency. This is the reality of what a small business man does. He is travelling about running his business and he does little else. His car is used for that—more for business purposes than is the pool car.

The Chancellor and the Financial Secretary will ride about in their pool cars and pay no tax. My small business man will pay tax up to the hilt. This is one unfair distinction which is so inherent in the proposals before the Committee. For this reason, I hope that the Committee will reject these proposals lock, stock and barrel.

Dr. Glyn

I share the sentiments that have been so ably expressed by my hon. Friend the Member for Basingstoke (Mr. Mitchell). All hon. Members will agree that there is a certain element of uncertainty and a feeling of inequality about fringe benefits, but this clause is not the right way of tackling this question and will not in any way remove some of the abuses that we might like to see removed. It will attack many small people who do not deserve to be attacked.

It is ridiculous to use the word" director". There is no logic in differentiating in terms of directors who may run companies with a very small capital, merely because they call themselves directors or put the word "director" after their names on correspondence.

Then there is the question of the size of car. If an employer decides that one of his employees shall drive a certain type of car, like a Rolls or a Jaguar, even though the employee may wish to drive a different type of car he will be compelled to use the car on which his employer insists, and his proportion of the costs will be adjusted accordingly. The point here is that in this case he has no choice. If it is his own car, he has a choice; he can get a Mini, or some other car. But in this case he is in the position of having no choice. Nor can I see any justification for the difference between this system and the pool car system, or ministerial cars.

8.45 p.m.

I shall not repeat what my hon. Friend the Member for Basingstoke said about the small business man, such as the small builder, having a car suitable for his use and having to use it for business as well as for pleasure. In many ways this is a benefit, because it means that there is only one car on the road instead of two.

The reason why I am so concerned is that, like so many others living within the ambit of an airport, I have a large number of people who are employed there. It is not only pilots who are affected. That is the point that needs to be brought out clearly. Many people who work on the ground doing small jobs will be brought up to and over the £5,000 limit. Many of them work overtime at the weekend. They are doing quite ordinary jobs but they are, nevertheless, jobs that are necessary if the activities of a company are to be maintained.

I do not want to go into details about the concession of the 10 per cent. Most employees value it. This provision was in their original contract, and it will be difficult for them to see how its value can be taken out of their contract, because in some cases, as one of my hon. Friends said, it was one of the motives for joining the service. It was known that by means of this concession they could travel all over the world.

These concessions are not like ordinary fares which take someone from X to Y, by scheduled flight and back from Y to X. The seats allowed under this concession are treated differently. They are provided only when they happen to be available. The employee may be lucky and get on to a flight that he wants when he is travelling with his family. On the other hand, he may have to wait two days for a plane and in that way lose two days of his holiday. He may even find that at the end of his holiday he cannot get a flight back, because the seats are required by ordinary travellers. This is an extraordinarily difficult thing to evaluate, because it is not the same as an ordinary fare. Nor can it be given a proportional cost. I do not believe that anyone can evaluate the cost of this benefit.

I suppose that most of us have received so many letters on this subject recently that we have barely had time to read them. I propose to give details of a person who is about to retire. I know that the Chief Secretary is not interested in this, but it is a matter for concern for one constituent, who wrote to me saying that he had joined the service many years ago and had accumulated all his concessionary rights so that next year, when he retired, he would use the benefit to enable him to visit his family in New Zealand. He said that he had never seen his grandchildren, and that this was the one opportunity to which he had been looking forward all his life. He wanted to know—and I am asking for a direct answer—whether he would be caught and how he was placed.

There are three or four further points that one ought to mention. As has been said, these concessionary seats cannot be used when they are required by members of the public. I accept the figures given by my constituents, as they appear to be the same all round. I think that the members of airlines have pooled their information, and if I were to put the loss at £5 million a year I do not think there would be any quarrel with that. In fact, they will be losing a large sum of money.

They are also worried about one other point—they fear that the level will be reduced from £5,000 to, say, £2,000.

Mr. Kenneth Lewis (Rutland and Stamford)

Does my hon. Friend realise the effect that this could have on someone who is earning £4,500 a year at the moment and is offered promotion? He may say "I do not want to be promoted, because I have my travel advantages, which are equal to if not greater than the amount of the increase in salary I would be getting. I prefer to stay the way I am."

Dr. Glyn

My hon. Friend has a point. But I do not think that anyone is going to be able to evaluate accurately the amount that a man is actually getting in benefits. This particular form of travel is very different from any other, and that will be a constant source of argument.

The Inland Revenue will have a great deal of trouble estimating the value of benefits of this sort, particularly air travel. It will make tremendous administrative difficulties. I do not believe that this is a sensible tax, and I shall most certainly vote against it.

Mr. Norman Lamont (Kingston-upon-Thames)

I declare an interest in that I have a company car. It is a comment on the inefficiency of the Government's proposal that I, who hardly use the car for business purposes, will be hardly more adversely affected than my more hard-working colleagues who use company cars frequently for business. I hope that my interest will not disqualify me from voicing the fears of many middle ranking executives in industry.

I accept the case that benefits in kind should be taxable. I think that it would be far better to have lower tax rates, higher pay, and a totally sensible tax regime. But that is not the world in which we live. We have to look at these proposals against the background of the financial position in which management finds itself today.

The Financial Secretary to the Treasury said only the other day, under pressure from the Left wing, that it was a fact that in post-tax incomes this country already had a more equal distribution of income than either Poland or China. I thought I must have misheard him, but I checked with the Official Report and I found that his officials had not rushed up to seek to delete this statement. So post-tax incomes in this country are more equal than in many Communist countries. That is the extent to which differentials have been squeezed. Management has suffered a very considerable drop in living standards—according to one survey it was 13½ per cent. in the last year. Just imagine what an outcry there would be if there were such a general drop in living standards throughout the population.

The sacrifice that managers in this country have made prompts us to ask, rightly, whether this is the right time at which to make this fundamental change in our tax system. Apart from the timing, one would also question the whole fairness with which the new taxes are to be applied. One would have thought that the new r égime should apply equally to the public and private sectors, but that is not the case. One area which has received some publicity in recent months concerns benefits in kind for Foreign Office employees. I asked the Financial Secretary recently: whether the proposals in the Finance Bill for the taxation of fringe benefits apply to educational allowances for children of diplomats serving overseas". He replied: No. Boarding school allowances paid to Foreign Office employees serving overseas are certified by the Minister for the Civil Service as representing compensation for the extra cost of having to live outside the United Kingdom."—[Official Report, 6th May 1976; Vol. 901, c. 469.] All well and good. I know that diplomats incur extra cost but so, too, in many circumstances, do business men who are confronted with these problems just as much as are diplomats.

Mr. Nott

I was not aware of that Answer. Will my hon. Friend ask the Financial Secretary whether the benefits that serving officers in the Forces get for sending their children to school in this country are taxed?

Mr. Lamont

No doubt the Financial Secretary will answer my hon. Friend's question. I think he will find that the difference arises as between the taxation of allowances which are paid to people who are in the United Kingdom and those which are paid to people outside it.

One would have thought from the provisions of subsection (1)(b) that the taxation should apply to fringe benefits paid to Foreign Office employees. This covers not only educational allowances but loans for the purchase of cars, accommodation help, entertaining expenses and help in the house. Subsection (1)(b) provides that the benefit is not, apart from this provision, chargeable to tax as income. In other words, it will not be subject to tax if it is not already so under tax law. Quite clearly one would have thought that the provisions should go further and ought to apply to business men who find themselves in a similar situation with similar commitments.

We also come to the question of the Civil Service and Government powers. Why do not Permanent Secretaries have to fill in P11D forms in respect of their cars? Some civil servants are picked up from the Underground station when they arrive in London. No doubt we shall be told that these are pool cars, but the distinction between private use and official use is not always very clear. Cars may sometimes be used to take a Minister's children to school when he is on his way to the office. One has on occasion seen official cars outside the opera house—no doubt to take Ministers back quickly to the House of Commons.

I do not wish to make any particular official use and private use is not always easy to define and I suspect that the discretion involved in tax treatment is simply for the convenience of both Minister and civil servants.

9.0 p.m.

We then come to the clearest case of where the taxes should bite on the public sector, and that surely is in respect of Ministers' official accommodation. If the provisions are too unfair for the Cabinet, they are too unfair for everyone else. If they are designed to get equality of treatment, that equality, which I accept, should apply to Ministers' houses.

It is quite clear that the official accommodation in Downing Street, Carlton House Terrace and Admiralty House ought to be liable to taxation under the provisions of Clause 52. I cannot see what possible excuse there can be for the Government attempting to exempt, as they have indicated they will, official accommodation from the provisions of the Bill. It cannot be said that Ministers reside in, and use, their accommodation solely for their official duties. We all know that they spend their private time, as well as their official time, there. They do their private entertainment there as well as their official entertainment.

Nor can it be said that this is accommodation which an employee's employer is providing for him. This is another justification which has been put forward through the Press. It would seem quite iniquitous that this justification, from which directors of companies are specifically excluded, should be even attempted to be applied to Ministers.

I do not believe that it could arise, because under the terms of the legislation, coupled with that provision is the requirement that the person receiving the benefit in kind—the accommodation—must actually be required to live there. We know that there is no requirement that ministers should live in their official accommodation. My right hon. Friend the Member for Chipping Barnet (Mr. Maudling), when Chancellor of the Exchequer, did not live in his official accommodation for a while. The right hon. Member for Huyton (Sir H. Wilson), when Prime Minister, did not live in his official accommodation for a while. It cannot be argued that one is required, in the course of fulfilling one's duties, to live in this accommodation.

It is quite clear that Ministers' official accommodation ought to be liable to charge and the question we have to ask ourselves is, what would be a fair asssessment? As far as the Chancellor is concerned I would settle for a rental value on No. 11 Downing Street of about £12,000 a year, which would give him an asssessable income, with his £16,000, of about £28,000 a year taxable income. If the Chancellor is to dole out this nauseating medicine he ought to try to take it himself.

We have not quite got to the stage of having supermarkets where only Government officials and Ministers, can go, but more and more we seem to be moving towards a society where officials and politicians are the only people who count and who are to have the perks. At the same time middle management is being squeezed more and more. Their differentials are being eroded, and one sees the whole spectre of the cash economy with millions of people, employed in self-employment and in casual employment, going around demanding payment in cash for work done.

The hon. Member for Tottenham (Mr. Atkinson) estimated the other day that the cash economy is about £3,000 million. I am not sure whether the GDP figures we have are complete nonsense because of the cash economy but one thing is becoming clear—that being employed in a large organisation is a mug's game and no one will give one any encouragement to do so.

I accept that benefits in kind should be taxed. They are taxed in many other countries, such as France, Switzerland and Holland. I am also sure that many companies would prefer a r égime where they could remunerate people in a straightforward way through paying them adequate salaries, but the regime we have at the moment militates against that.

In the present circumstances loopholes like these allow people to breathe when executives have been squeezed more and more and are becoming more and more demoralised. The Government's own Professional and Executive Register estimated the other day that no fewer than 30,000 executives wanted to leave this country—a third of the total on the register.

These proposals are hightly vindictive and the least that the Chancellor could have done was to make his own pips squeak.

Mr. Michael Grylls (Surrey, North-West)

Like my hon. Friend the Member for Kingston-upon-Thames (Mr. Lamont), I believe that a much better regime—I would accept the swap happily —would be for the rates of tax to be altered and all fringe benefits done away with, but my hon. Friend knows that the growth in fringe benefits over the last few years is a direct result of high taxation. As my hon. Friend said, this is having an appalling effect. Not only high taxation but, now, the latest attack on the normal benefits of business will drive more and more people abroad. It is odd that when we are trying to encourage industry to invest and export salesmen to do more, it is just those people who are being picked out under this legislation. That is crazy.

We were talking at Question Time only today about the results of Leyland. If this new tax on company cars begins to bite, as I suppose it will, it will have a disastrous effect on the car division of Leyland. What answer have the Government given to Leyland? I understand that the Leyland board has made representations to them about this measure.

There are some curious provisions in these clauses. Clause 52(2), for example, refers specifically to "entertainment". Are we to assume that if an export director takes someone to a cabaret or a display of belly-dancing, it will be taxed as a fringe benefit? Will he have to assess the cost of the evening and declare it? If not, how is entertainment to be calculated? An export salesman's night out with a customer may become pretty expensive.

These are, perhaps, only small matters, but they are symptomatic of the ridiculous way in which this tax has been proposed. It has always been a joke that people working in a chocolate factory are told that they can eat as much as they like: they never eat much after the first day, because they gorge themselves. Will they now pay tax on the number of chocolates they eat, because they are a fringe benefit? There is no end to the ludicrous features of this absurd tax.

Let us suppose that a public-spirited company—let us revert to British Leyland—provide people doing unpleasant work with a swimming pool for use in their time off. Will that be included as a benefit? Clause 54(5) refers to a benefit consisting in an asset. All sorts of strange things will come up, apart from what my hon. Friends have already said about airline staff, and so on.

I do not begrudge the miners their free coal. It is right that they should have it. I hope that they go on having it, and I would not wish it to be taxed. Mining is probably one of the most unpleasant jobs there are, so why should the miners not have the coal after all the time they spend digging it up?

There are already £5,000-a-year miners. I suppose that most of us hope that within a reasonable time all miners will become £5,000-a-year miners. If that happens, they will be all assessed on their coal. It is a petty, ludicrous tax. I cannot believe that the Government have thought it out. It is as if they had been mesmerised by the idea of a company director or company executive being provided with a car and said "We must attack him, so we shall have a wholesale onslaught."

I am not sure that I agree that Government cars will be exempt. According to Clause 56(2)(a), a car that is used by one employee is not a pool car. In other words, to be a pool car it has to be available for everyone. The Prime Minister's car, the Chancellor's car and the cars of senior Ministers are not available for other people, but are available exclusively for those Ministers. It will not do to fiddle the books and try to claim that they are pool cars.

It is ludicrous that very large firms which can provide a pool of cars for their middle management and senior directors will get away with it, whereas smaller business men who have a car for their business, who go to the cash-and-carry stores to get goods for their shops, or to Covent Garden to get fruit and vegetables for their shops, will be hard hit by the tax.

I have many British Airways staff in my constituency. The airline ticket cannot lightly be set aside. British Airways staff expect to get airlines tickets as part of the conditions of their employment. If they are to be assessed on the value of the tickets, what value is to be taken? The rates of airline tickets are in a state of chaos. It is possible to get extremely low rates from a tour operator. Airline employees will be taxed on tickets at a higher rate than if they purchased them on the free market.

Mr. Barney Hayhoe (Brcntford and Isleworth)

Does my hon. Friend agree that in his constituency, like mine, many people who earn less than £5,000 a year are incensed by this provision? They say that their expectations for the future are endangered, and they are protesting vigorously as a matter of principle rather than as a matter that directly affects them. We should take account of the strength of that feeling.

Mr. Grylls

My hon. Friend is right. What he says is apparent from the letters that I have received, not only from the people at the top of the airline tree but from people who are working their way up and have expectations of these benefits. The Financial Secretary will find it difficult to assess the value of the tickets.

Clause 54(4)(b) refers to a benefit that is substantially the same as one that is provided for the rest of the public. An airline ticket provided for a member of the staff of an airline is not the same as the airline ticket that is provided for the rest of the public. The public are not liable to be tipped out at Abu Dhabi because the airline is full for the next part of the trip. That cannot be classified as a normal trip; it is an operation to fill up the aircraft. Staff who are dumped off may have to pay for two nights at a hotel, and may be separated from their families. I hope that the Financial Secretary is able to interpret the Bill. I do not understand the wording on page 35, in line 1: is substantially the same as one which they so provide". I do not believe that a ticket provided for airline staff is the same as a ticket provided to fill up places in an aircraft on occasions when other people do not wish to travel. Those tickets are in a different category.

The income involved is no small amount. We must remember that a sum of £5 million is involved in concessionary fares and that that income will be lost to a nationalised airline. Surely there are enough problems without adding that one.

9.15 p.m.

I wish to put a number of points to the Financial Secretary. It may be said that these matters can be considered in Committee upstairs, but I hope that we shall deal with them in this debate on the Floor of the House. We must remember that many people who will read this debate with interest tomorrow will want to know where they stand. They will want to know whether they will be brought within the scope of this legislation.

I wish to make a plea to the Government. I ask them to forget this petty, unnecessary, damaging clause. I ask them to be man enough to admit that they have made a ghastly mistake, which will affect people adversely—and the people affected are those in the lower to middle income bracket who are already been squeezed. I refer to the people who in the last year have seen their income drop by over 13 per cent. Is it right that such an imposition should be placed on top of all the other worries for such people? This is happening at a time when we are all being asked to make sacrifices to solve our problems. I hope that the Financial Secretary will be able to alleviate those worries.

Mr. Tebbit

It has been said in the past It's the poor what gets the blame, It's the rich what gets the pleasure I think it can be truly said that even the poor have had very little pleasure recently, despite the fact that the Chancellor has seen fit to tax the rich. More and more he has resorted to provisions which have hit the poor. However, this tax does not hit the poor. It is not like income tax which strikes at the poor, although that, too, began as a tax on the rich.

The tax with which we are now dealing is intended to hurt the rich, but its effects will hurt many ordinary wage earners.

I choose my words carefully when I say that it is intended to hurt the rich, It is not a tax aimed at raising revenue to carry on the business of Her Majesty's Government, but it is a tax which has the object of hurting, and indeed spiting, particular groups in the community. Unfortunately, even if it is thought right that those groups should be hurt, the tax has to be drawn so widely that it will hurt many others whom it was not the Government's intention to hurt.

I agree with those who have said that there should be no system of perks—no tax-free bits and pieces on the side. But before we reach that situation, we should have to have levels of salaries and differentials that enabled the system to make sense. But here is another proposal to squeeze differentials. Not only is it a tax, but it is a tax at the marginal rate.

Hence, to take the case of airlines, of which we have heard much this evening, we shall find that the differential between the captain of the aircraft and the co-pilot will be squeezed still further. This squeeze is going on in consequence of the incomes policy of the Government, or the TUC, which has been running for almost a year and which looks as though it will become a permanent feature of life while the Government are in power.

I am puzzled about many aspects of this Bill. Consequent upon what my hon. Friend the Member for Kingston-upon-Thames (Mr. Lamont) has said, I am beginning to wonder whether the lunches which we nave when we go out and are entertained or entertain others during our work as members of Select Committees ought not to be taxed. After all, they are perks which we receive in the course of our work. Perhaps they should be taxed, too. If we are to tax these other people we should at least set a good example, along with the Chancellor, the Prime Minister, the Government Chief Whip and the civil servants and all the other parts of the new establishment of the Socialist egalitarian bureaucracy which leaves the bureaucrats richer than anyone else.

Because I know more about it than other aspects, I want to deal with the way in which this proposal will hit those people in airlines. I do not represent BALPA in this House although I am still a member of that association. Tonight I imagine that what I say will represent the views of almost all its members. I think it will represent the views of members of many other unions, too.

Hon. Members will know that I worked for BOAC. I wonder whether I have an interest which I ought to declare because I am a pensioner of British Airways. Do I get taxed on the continuing concession of cheap travel which I have? Are pensioners to be taxed? When will that be made clear? I should add that my son works for British Railways. I am not sure that he does not have a concession which, when he marries, will enable him to take his wife on cheap travel occasionally—possibly even his parents. I might have a double interest.

It is curious how this air travel concession has angered the Inland Revenue for many years. There was an attempt to tax this concession 15 years ago which ended in the High Court when the Inland Revenue was defeated. So tonight it is seeking its revenge. The Revenue has not drawn the Bill very well. It has been suggested that seats in pool cars will not be chargeable. Why, then, are the seats in aeroplanes to be chargeable? They are pool seats, too. No one has the special use of one of those seats.

Let us look at the benefits we are talking about and first at the benefits to the employer. Certainly it is a benefit in that it is an incentive for people to work for a particular employer who can offer this facility. It is certainly a benefit for staff in that it is no doubt a good thing for them to experience at first hand the service which they sell to others. I do not mean only the pilots. I mean the chaps in the hangar, in the office—every member of staff. It is certainly good in revenue terms for the airlines. The figure of £5 million has already been quoted and I am assured by British Airways that it is correct. This practice represents £5 million of revenue to the airline which it would not otherwise receive.

Every pound of that revenue which British Airways does not receive is a pound less in the public purse. It will either be a pound less profit to British Airways or a pound more in losses which will be subsidised out of taxation. That is probably the biggest slice anywhere in all the sums we are talking about. The airline seat is not something which can be saved on Monday to be sold on Tuesday. It is as perishable as ice-cream without a refrigerator. It is as perishable as a newspaper. There is not much sale for yesterday's newspaper. It is as reasonable for the airline to sell seats which are empty at a cheap rate to its employees as it is for a greengrocer or Marks and Spencer or Sainsbury's to sell perishable produce cheap to their employees on a Saturday night when they put up the shutters. We would think it crazy to institute a system which forced the greengrocer to throw his products in the dustbin rather than let his employees have them. Yet the Government are proposing a system which will force the airlines to do the same sort of thing to the public detriment and loss.

There is a self-evident benefit to the employees, but what is it worth? It is worth to British Airways £5 million a year, and more in good staff relations. What is it worth to the employee? In the 17 years for which I worked for BOAC, I travelled as a staff passenger at reduced rate three times to Rome, once to New York and once to Zurich. It seems very little when the perk was available to me all the time. The heart of it is that it is not nearly such a wide concession as the public and, presumably, the Treasury believe.

That brings one to the question of the assumed value of the concession by the Inland Revenue. The employee travels subject to load—that means that he may not get on board the flight that he wants, that he may be off-loaded en route. I came back to England from Los Angeles last weekend. The flight on British Airways was full, and 40 people attempting to travel on staff rebate tickets were left behind in Los Angeles on Saturday night. What would the Treasury say was the value of those tickets? Is it the normal fare less the 10 per cent. paid? Is the cost of the extra night or nights in the hotel in Los Angeles deductible from the value? If so, it is getting a little thin on value.

What about the loss of a day's pay for being late back from a trip of that sort? A day's pay is lost if the employee is back late from such a trip It is no good his saying that he was off-loaded or could not get abroad an air craft. Is that deductible from the benefit? What about the loss of value in a holiday which starts late? Is that deductible? Is an allowance to be made for the fact that the staff traveller normally plans to end his holiday a couple of days early to try to ensure that he is back at work on time, thus effectively losing part of his holiday entitlement? Is that deductible from the benefit he is held to have?

The whole clause is sloppily drawn. I have already observed that there is doubt in people's minds whether this charge falls on pensioners of the airlines. Does it apply to those with incomes from two sources or more which aggregate to more than £5,000 but where the benefit is provided by an employer from whom the beneficiary receives less than £5,000? Does it apply to the married couple working for the same employer whose income aggregates to more than £5,000, or only if each of them has an income of more than £5,000?

Is the provision meant to catch the worker in the airlines on average industrial earnings who takes his family to Australia perhaps once in a lifetime—because it will catch him? The ridiculous situation might arise where staff travellers all want their holidays before the end of April in order that they can go within a period which will enable them to split the benefit between two tax years.

9.30 p.m.

Mr. David Mitchell

Would my hon. Friend envisage a situation, in the case he described, of somebody going to Australia for a once in a lifetime journey, where the tax liability could actually be more than his total income in that year?

Mr. Tebbit

It is very possible indeed if he has a family of three or four children with him. I do not know what the Treasury would expect to do in that case.

Will it apply to the man, posted overseas by an airline, who wants to come home to see his family more often than the airline allows as a standard part of his contractual right, and who comes home on a 10 per cent. ticket? Will it apply to him, or will he be in the same situation as the Foreign Office diplomat, who has the non-chargeable benefit of education for his children when he is posted overseas?

The Government should realise the extent of the anger caused by this proposal. I wish they had sent somebody to Heathrow Airport last Tuesday, when the airlines came to a stop because there was a mass meeting of employees to discuss this matter. If the management did not encourage it, they certainly did not object to it. A good many representatives of senior management were there, too. Those trade unions represented at the airport unanimously opposed this measure.

Mr. Sydney Bidwell (Ealing, Southall)

My understanding, as someone with a constituency close to the airport, is that the trade union representatives do not oppose the principle but are considerably worried about the possibility of overvaluation. They do not oppose the general principle of going after the fringe benefits, provided that it can be operated in a fair way.

Mr. Tebbit

I am most grateful to the hon. Getnleman. He makes the position crystal clear. The trade union movement does not mind who the hell is taxed, or how hard people are taxed, unless it hurts trade unionists. It agrees with the principle of it, but not with the particular application of it. I do not know why on earth we have not had a Trade Union Members (Exemption from Taxation) Bill brought forward in this House. Presumably it will come before long.

The message from that mass meeting at Heathrow, which was attended by very many members of trade unions, was not that they did not like the way in which it was being valued, or something of that sort, but that they deeply and completely resented the way in which the Government were attempting to tax the benefits. That was the message. All the members at that meeting were told to write to their Members of Parliament about it, and to get their Members of Parliament to come to the House about it.

I look across the Floor to the wide open green leather spaces opposite, and I wonder where are the chaps who get their election expenses partly paid by trade unions so that they may look after the interests of the members. We have not heard a word from them. The hon. Member for Ealing, Southall (Mr. Bidwell) has crept in recently, presumably because he is wondering whether he can get home before long. He is no doubt hoping that the debate will soon be over and that he can decently steal away after the Government have done their dirty work.

Mr. Bidwell

I came to listen to the hon. Member.

Mr. Tebbit

I am grateful to the hon. Gentleman. When he finds the hon. Member for Feltham and Heston (Mr. Kerr), who is a Member sponsored by the ASTMS—many of whose members are affected—he can tell him what I said. I hope he will also look round for the hon. Member for Bethnal Green and Bow (Mr. Mikardo) and tell him what I have said, because he is another Member sponsored by ASTMS. I know what the ASTMS members at London Airport think about this measure. They are not worried about the niceties of whether it should apply to somebody here or somebody there, a director of a bank, or anything else. They are worried about the fact that, as I observed, at the beginning of my remarks, the taxes which are supposed to hurt the rich are now hurting the ordinary members of the public, the ordinary wage earners.

Mr. David Mitchell

Members of Parliament.

Mr. Tebbit

I wish, in a way, that they were going to hurt Members of this House more—not that I want to take any further burden of taxation, but it would be a standing disgrace if Members of Parliament and, above all, Ministers and civil servants did not take their own filthy medicine.

Mr. David Mitchell

My hon. Friend has referred to trade unions which give financial assistance and retainers to certain hon. Members. Are we to understand that these, too, are taxable?

Mr. Tebbit

That is a very interesting point which I am sure will be pursued.

If the Committee divides on this clause, I shall not be voting. It so happens that I am paired to oblige a Government supporter who cannot be here. But I have come here to speak on behalf of trade union members whose sponsored Members of Parliament are not here. It may be that they will come in to vote, but they have not been here to make their voices heard.

If I may digress slightly, once again we see what happens when we have "sweetheart" unions. That is a term of abuse used for a bosses' union. I look across this Chamber tonight only to see that hon. Members who are sponsored by trade unions are absent. They are not here because they wish to spare themselves embarrassment. They would have to speak either in favour of this filthy proposal or in favour of their members. It is clear which are the real "sweetheart" unions now. They are the kept creatures of this Government, and this Government are the kept creatures of the trade unions. For once I hope that, when the trade union voice gets through to the Treasury and the Treasury is told to take away this rubbish and tear it up, it will listen.

[Mr. BRYANT GODMAN IRVINE in the Chair]

Mr. John Wakeham (Maldon)

As this debate proceeds, the effect of Clause 52 and subsequent provisions will become much more apparent to people and will cause a great deal of worry and resentment among many executives and others on relatively modest levels of salaries. I accept that some of the differences and problems that have arisen are the result of the political spite of Government supporters. My hon. Friends have spoken about a great many of the clauses that will affect benefits in kind and about the concern that is felt by middle management and senior staff.

I wish to deal with one other aspect of this matter. One of the advantages claimed by the Chancellor of the Exchequer in his Budget spech was that these proposals would produce a great deal of simplicity in the taxation system—an advantage which, if it were true, we should all welcome. However, in my opinion these proposals are unlikely to produce much in the way of simplicity for the overall body of taxpayers.

Many individual arrangements that nave been made between taxpayers and the Inland Revenue will have to be altered as a result of the provisions of this clause. A person may have a company car paid for by his company that will fall to be assessed in the way that the Chancellor proposes, but he way well have a second car, provided and paid for privately by himself, which on occasions he uses for business purposes. I have in mind those occasions when his company car is being serviced.

On many occasions arrangements are made with the Inland Revenue that private benefit from the car provided by his employer is, in practical terms, much the same as the business use of a private car for which he pays the expenses.

All these arrangements will have to be renegotiated with the Inland Revenue. I suggest that there are hundreds of thousands of cases in which special arrangements have been made which, as a result of this legislation, will require alterations and additional complications. It is very unlikely that these proposals will result in a simplification of our tax legislation. No doubt there are many good legal brains at this moment thinking of quite legal and proper ways of mitigating the worst effects of some of the more spiteful aspects of this legislation. This will continue while our direct taxation remains so high.

Another aspect of this question that is causing me considerable concern is the proposal to assess benefits in kind not on the basis of the cost to the employer but on a notional or arbitrary basis. For instance, an arbitrary basis is decided for cars that has nothing to do with the cost. This will produce many unfairnesses.

Our departure from the basis of assessing benefits by reference to the cost to the employer could not have been more graphically brought out than in our discussion about airline fares and the cost to the public and the employer. That is the classic example of a switch from the principle of taxing a benefit by reference to the employer, and in attempting to find another form of assessing the benefit we have discovered many anomalies within a matter of days of the legislation being introduced.

I do not believe that the proposals will produce the simplification that the Chan- cellor claims as one of their justifications. Instead, there will be more complications.

Inherent in the proposals is an extremely serious departure from the basis of taxation in this country. For these reasons, I shall oppose the proposals.

Mr. Cecil Parkinson (Hertfordshire, South)

I start by declaring an interest. I am leader of the Institute of Directors' parliamentary panel, and I also have a company car. The institute's parliamentary panel produces a very large declarable income—nil.

My hon. Friend the Member for Kingston-upon-Thames (Mr. Lamont) said that if tax were charged on all benefits to everybody, regardless of income, he would have no objection. I agree with him. If everybody paid tax on everything that could be called income there would be substantial reductions in our tax rates.

I accept the principle of taxing benefits, provided it is done on a fair basis for everybody, but this is not, and has not been, the case. In the Bill, a particular group has been singled out by the Chancellor for special treatment. Anyone who describes himself as a director, regardless of the size of his company—I know some people who run sweet shops who are company directors—will be penalised by the Chancellor. Anyone with an income in excess of £5,000 a year will also be picked on by the Chancellor.

Why is the right hon. Gentleman picking on these groups? They are people who, in the main, have suffered a pay freeze as a result of the Government's policy in the past year. I make no complaint about that. The Government have a right to impose the pay freeze, but many of the people caught by the change in legislation that we are now discussing have had their incomes frozen for a year.

Secondly, they are people who can expect a maximum pay increase of £4 in the next phase of the Government's pay policy, provided that the trade union movement accepts that policy on 16th June. Thirdly, they are people who, day after day, have to listen to lectures about sacrifice from Mr. Jack Jones. In the course of the past year Mr. Jones has done an excellent job in ensuring that his own members have made very little sacrifice. The facts are quite unarguable. The average industrial wage, which most of Mr. Jones's members receive, has increased by over 50 per cent. in the past two years. There has been no sacrifice on the income front comparable with the sacrifice that those with higher incomes have made during the freeze.

9.45 p.m.

The rest of us have watched the country have imposed upon it Socialist measure after Socialist measure at the behest of Mr. Jack Jones. He has done extremely well out of this Government during the past few years. He and his friends, who have a vision of society that I do not share, have had the joy of seeing furthered the prospects of that type of society.

The group that I am talking about that will be penalised tonight has had its wages frozen. It has watched Mr. Jack Jones getting away with murder and it has had to take lectures from him about sacrifice at the same time. What is more, it is seeing this legislation introduced into Parliament by Ministers who have made arrangements not to be affected by it themselves. They are to be protected from its consequences. We are watching this legislation being put up to Ministers by civil servants, a large number of whom are on incremental scales that have absolved them from the effects of the pay freeze They have inflation-proofed pensions and perks that will not be assessable.

If we are to value everything, what value is to be placed on the prospect of appearing in the Honours List, or the possible job in a City bank after retiring from a senior job in the Treasury? All these things are perks, or by-products—call them what one will. They are benefits, and they accrue. We all know that they accrue as sure as night follows day.

My hon. Friends have found it interesting that Ministers have arranged to exclude themselves from the provisions of the clause. But this is only an extension of a type of thinking that has been adopted by Labour Treasury Ministers for a very long time. I remember the days when I was in practice as an accountant in the City, during the term of office of the previous Labour Government. The Treasury came forward with the notion that entertaiment expenses were not to be allowed. If one was entertaining a foreign visitor or a foreign customer, entertainment expenses were allowable, but they were not allowable for entertaining one's largest British customer.

I remember my clients reading, day after day in the Court column of The Times, about the activities of the biggest entertainers of them all. Any Minister, however junior or unimportant, was to be found at Lancaster House hosting some sort of conference. My clients used to say to me "It is a bit rich. I spend my time trying to earn profits and paying taxes, and if I try to entertain my largest customer my expenses are not allowable, but I see these Ministers, who are spenders, not creators, giving parties night after night."

The then Prime Minister was the biggest giver of working dinners of all time. There was never a night when No. 10 was not full of schoolmasters, vice-chancellors, trade union leaders, or television personalities. They were all being talked to by the Prime Minister at, presumably, someone else's expense, but that was not a perk—that was working. However, business men who were working and earning the money to pay for the Prime Minister's dinners. and those for his friends, were told that if they tried to do it for their customers they would be doing something highly improper.

As the Committee will probably have gathered, I object to the clause that we are discussing. I do so for three or four reasons. First, I regard it as an extremely vindictive and arbitrary clause. Directors and those earning over £5,000 a year are co be caught. We all know that there are hundreds of thousands of people who have perks that are tax-free and will not be caught.

I will give an illustration. I once acted as arbitrator in a dispute between the Electrical Trades Union and an electrical company. I was absolutely staggered at the scale of travelling expenses and subsistence allowances to which ETU members are entitled. It was almost impossible to work for the ETU and an electrical contractor and not to have a substantial tax-free surplus at the end of a week of travelling and subsistence allowances, on the scale of allowances that then existed.

When the general secratary of the union made his final plea for an award he said "And I hope, Mr. Parkinson, that you will find it possible to make the award in tax-free form by increasing our benefits in kind." That was very sensible of him. He was behaving like the good capitalist that most trade unionists are, if they will only let themselves go.

If we are to talk about taxing all benefits, what about council house tenants? What about those people in Camden who are paying £5 a week for a house that is costing the Camden council £60? What about the social wage that the Chancellor boasts about, where people get a certain sum that is available in a very arbitrary fashion—just one of the bonuses that go with a certain kind of existence?

Mr. Tebbit

Clause 54(4) shows that the employee of a local authority who lives in one of the authority's houses should be taxed on its value.

Mr. Parkinson

I am only a simple chartered accountant and I would not dream of crossing swords with my hon. Friend in his discussion of that provision.

Mention has been made of railwaymen, airline employees, and employees of insurance companies who get loans and help with mortgages. I have mentioned the Electrical Trades Union. We know of many other cases in which agreements have been made for subsistence allowances or travelling allowances that have little to do with the real cost of subsistence or travelling. The allowances are paid.

The Chancellor, in an attempt to appear fair, said in his Budget Statement: …I intend that the provision of car and loan benefits at least should be taxable in the hands of all employees whatever their salary"— but he qualified that by saying: when staffing in the Inland Revenue permits." —[Official Report, 6th April 1976; Vol. 908, c. 263.] There was no mention of any other benefits—just the two that we are considering tonight. This proposal is vindictive, and very arbitrary.

I suggest that the legislation as it affects the provision of cars is unfair. It has been said by a number of Conservative Members that the person who uses his car for a small business mileage and who has a large personal mileage may be better off under the Government's proposals. The person who uses his car for a large business mileage and a small personal mileage may be worse off.

What is wrong with the present system'? Anybody who has a company car has individually to agree his assessment with his assessor of taxes. Is the Chancellor saying that inspectors of taxes are incapable of administering the law? Is it wrong that each case should be looked at and agreed with the inspector of taxes?

The only group of people who will benefit from these grotesquely unfair proposals are the staff of the Inland Revenue, whose job will be made easier. Is it Parliament's job to persecute the individual, so that the life of tax inspectors can be made a little easier? To date the Government have made no case of any kind for this totally unjust approach to taxing company cars, which I think will produce many injustices.

I feel that in these proposals the Government have set off down a very long road. I do not know whether they are trying, via the tax system, to persecute people, to try to tax people in society, to say that they will cancel every benefit that goes with the job regardless of the disadvantages. How many of us want to be miners, to qualify for free coal? How many want to work on British Railways, so that they can qualify for free travel? How many want to be the sales director of a company, to get a perk by way of a car? A job can carry many disadvantages and difficulties, and if there is a perk, is it really necessary for Parliament to try to seek it out and tax it, and not compensate for the disadvantages of the job that a person is doing? There is rough justice about the present system. There is a big injustice built into the Government's proposals. Why pick on directors? We know that they are part of the Labour Party's demonology, but could not we drop this bit of nonsense once and for all?

I urge the Financial Secretary to consider Amendment No. 97, in my name, which proposes that if this pernicious piece of legislation is to be introduced its introduction shall be postponed, because undoubtedly many salary scales have been fixed to take into account the odd benefit that may be in existence and may not have been taxable to date. It may be that the Government will get their way and these benefits will become taxable, but there will need to be a period in which salary scales can be adjusted to take these changes into account. I hope that the Government will come to the conclusion that delaying the introduction of these proposals for another year, even though they get their way, will not be particularly damaging and may even promote something about which the Government talk but of which one does not often see anything, namely, justice.

Mr. Nicholas Winterton (Macclesfield)

We have heard a fine presentation of the inadequacies of the Government's proposals and I congratulate my hon. Friend the Member for Hertfordshire, South (Mr. Parkinson) on the way in which he put over his argument. I hope that the Financial Secretary will consider carefully and deeply the many valid points that have been raised.

I am sure that many hon. Members have received representations from constituents about the Chancellor's Budget proposals to tax employees' concessions. I do not intend to delay the Committee for long, but I wish to elaborate on one or two of the points raised by my hon. Friend the Member for Chingford (Mr. Tebbit). He talked about airline pilots and those who work for the airways in this country, and only today on getting back to London I received a letter from a constituent who is an airline pilot employed by British Airways. He is based at Manchester, and he points out to me, and underlines it in his letter, that as a captain in an airline he is one of the lowest-paid major airline pilots in the world. That is important to note.

His letter continues: It goes without saying that I am also one of the most highly taxed. Under this Government perhaps that is appropriate. Everyone knows Air France pilots get the equivalent of £42,000 per annum. Not everyone knows that due to special considerations, such as the risks involved in the occupation and the compulsory retirement at 55 years, such a pilot"— referring to the French— takes home about £37,00 per annum, KLM and Sabena, (Dutch and Belgian) pilots get in excess of £30,000 a year as do the Italians. Lufthansa and Iberia pilots get nearly £30,000 a year. Scandinavian pilots"—

It being Ten o'clock, The CHAIRMAN left the Chair to report Progress and ask leave to sit again.

Committee report Progress.