§ (1) No charge to Schedule E tax shall arise in respect of travel facilities provided for members of the naval, military or air forces of the Crown going on, or returning from, leave.
§ (2) This applies whether the charge would otherwise have arisen under—
- (a) section 36 of the Finance (No. 2) Act 1975 (certain vouchers treated as benefits in kind);
- (b) section 61 of the Finance Act 1976 (benefits in kind for the higher-paid); or
- (c) Chapter I of Part VIII of the Taxes Act (charge to Schedule E tax);
§ (3) This section has effect for the year 1976-77 and subsequent years of assessment.'.—[Mr. Robert Sheldon.]
§ Brought up, and read the First time.
§ The Financial Secretary to the Treasury (Mr. Robert Sheldon)I beg to move, That the clause be read a Second time.
It exempts from income tax the cost of travel warrants for members of the Armed Forces, enabling them to go on leave. It also exempts the cash mileage allowance which is the equivalent of the value of the leave warrant, exempting that payment for journeys for which a warrant would otherwise be available.
The reason for the exemption is that Service men's leave journeys are unique. Service men are subject to military discipline in a way that prevents them from undertaking the kind of selection of areas to which they wish to travel, a restriction which does not apply to anybody else. Service men are subject to instant recall, and they would be committing an offence 830 if they did not return immediately. They are subject to compulsory transfer without warning from one part of the country to another and they are regarded as being on duty at all times with this added disadvantage of instant recall.
Because of that we believe that this is a wholly special case which deserves relief. I hope that the clause will meet with the approval of the House.
§ Mr. John MacGregor (Norfolk, South)I should like to ask the Minister one question. Subsection (3) indicates that this will have effect in the year 1976-77 and in subsequent years. It is therefore retrospective. Will the hon. Gentleman explain why this is and how common it is to have retrospective clauses of this sort in Finance Bills?
§ Mr. James Lamond (Oldham, East)I in now way wish to oppose the new clause. However, it was interesting that when my hon. Friend moved it he did not mention that it arose because of an error which was made in an earlier Finance Bill. The word "error" is perhaps a little harsh—I would say an oversight. It is interesting that, when some of these oversights come to light, exceptions can be made in special cases. I had imagined that my right hon. and hon. Friends in the Treasury were inclined to argue that no special cases should be made in taxation matters and that all of us should be bound by the same taxation law.
It was therefore rather surprising when I found that this new clause was being added at this very late date to the Finance Bill. Those of us who follow finance matters will be aware that in a recent debate this question was pressed strongly by Opposition Members. In fact, it was raised no fewer than three times during the recent debate on defence. On each occasion the Government spokesmen gave an assurance that no Service man would be liable to pay tax on warrants issued to allow him to travel home on leave.
My hon. Friend made a very good case as to why this exception should be made. There were points in his short speech which marked out Service men from the rest of us. But there are, of course, many other groups in the community which could make fairly strong special cases, too. These groups are not always as well paid as some of the recipients of this tax concession. For 831 example, salaries are now paid to some members of the Forces running as high as£23,000 a year.
These are the people to whom this tax concession is being made. Of course, there arc many others—the vast majority —whom I concede immediately are earning considerably less than that. But it is quite surprising how many members of the three branches of the Services arc on salaries perhaps a little more than our own as Back Bench Members of Parliament, and some of them considerably more. As I mentioned,£12,000,£15,000,£20,000 and£23,000 are some of the salary scales of the people that we are talking about.
The point I should like to make is that if this is a special case, there are many other special cases which could also be argued quite strongly—we shall not have the benefit of doing so—one of which is our own. The general public might notice the reticence of Members of Parliament to speak on their own behalf. When people arc looking through the list of new clauses and amendments and reading the proceedings of the Finance Bill Committee, I hope it will be realised how eagerly we take up the cause of nearly every other section of the community and argue its case, and yet we are a little reticent to argue our own, even when we feel that we have a pretty good case to argue.
§ Mr. A. P. Costain (Folkestone and Hythe)I welcome the new clause, but I wonder whether the Minister would give me an explanation. I ask him because, although these facts are well known in this House, there are a number of civil servants to whom the new clause does not apply. Will the Minister make clear what in fact is meant by:
travel facilities provided for members…on, or returning from, leave "7Where does the travel allowance permit the person to go? Is there any limitation as to what part of the country he can visit? The case has been put forward that a person's family might be away on holiday. Would the travel allowance allow him to go to any part of the country or only to his home residence?
§ Mr. George Cunningham (Islington. South and Finsbury)I agree that the effect of the new clause is one which we should support. It is not right that a 832 member of the Armed Forces, receiving a payment in the form of a voucher or whatever for travel home, should receive a benefit which is less than the cost of the travel home so that some part of the cost of travel has to be borne by himself.
But I think that the Treasury has found the wrong way of doing this. We ought always to be highly reticent about taking a particular group of people and exempting them from the normal operation of the law. If this were the only way of achieving the objective, I would agree, for the kind of reasons which my hon. Friend the Financial Secretary stated in his presentation of the new clause, that we should he prepared to overcome that principle. But this is not the only way of achieving the objective and nor is it the way that the Government in another part of the forest have adopted.
As I said in Committee, there is a practice with regard to at least one Government Department that I know of—I should have thought that there would be others—whereby the Government Department wishing to meet the full expenses of travel for some of its employees, or quasi-employees, pays a gross amount at such a level as will, after tax, leave the recipient with enough money to cover the total cost of the travel. This is an approach which is available within the law to any employer. It amounts to this. The employer is simply increasing the pay of his employee by an amount which varies according to the cost of travel, plus a computed element for taxation, to ensure that he is not out of pocket on the whole deal.
Had this been done, there would have been no need to breach the normal principle by picking out a group of people and exempting them from the normal operation of the law. Can my hon. Friend say why the Department of the Environment uses the device which I prefer for achieving this objective while the Department of Defence, if I can describe it as such, is given the same treatment but by a different means?
If one were to do the job in the way that I prefer there is an additional advantage which would go some way towards meeting the objection of my hon. Friend the Member for Oldham, East (Mr. Lamond), because I think that one would have to gross up the payment by assuming that 833 tax is payable by all persons at the basic rate. I would have thought that that would cover 90 per cent. and more of the people who will benefit from the new clause.
But, of course, if the recipient paid tax at a higher marginal rate than the basic rate, he would find himself to some extent out of pocket. There would, therefore, be an element of progressivity in the arrangement, which is highly desirable. The high paid Army officer on£20,000 a year or so would not then be getting the benefit to the same value as the private soldier, for example.
I hope that my hon. Friend call say why the alternative device has not been used here. If it is later discovered that the alternative device is preferable I hope that in later years we shall scrub this provision from the statute book, because it is offensive in principle to exempt from the normal operation of the law any group, however deserving we may find it.
§ 5.30 p.m.
§ Mr. Clement Freud (Isle of Ely)Will the Minister, when replying, clarify a point relating to what the Department of Defence persists in calling "married famiies'? In the case where a Service man is posted abroad and has his wife and family in Service accommodation, will the Minister declare whether the travel facility for the wife and family to go on leave is similarly exempted?
The hon. Member for Oldham, East (Mr. Lamond) rightly said that this House is very reticent about discussing its own problems—specifically its financial problems. I speak as one who is asked more often than most Members whether something could be done about giving tax relief for journeys to work. I think it would be invidious if Members of Parliament were allowed to have their journeys from their place of residence to their place of work made tax-exempt while their constituents did not have the same sort of privilege
§ Mr. Robert SheldonThe hon. Member for Norfolk, South (Mr. MacGregor) asked why the new clause covers the liability arising from 1976-77 onwards. The reason is that liability arises not from the Act passed last year but from the Finance (No. 2) Act 1975. Therefore, liability would be incurred 834 for 1976-77 onwards, and it is only right that relief should be effective from that date.
§ Mr. MacGregorThere are other cases where we have to put right the wrongs in previous Finance Acts, and we very rarely make them retrospective. I asked the Minister also what precendents there are for doing this kind of thing.
§ Mr. SheldonThe precedents for relief being retrospective are very many. If the hon. Gentleman will consider the matter further he will find that this is so, and I shall be pleased to discuss them with him. The fact remains that when relief is given there are nothing like the same objections to retrospection as there are when the burden of taxation is increased. I should have thought that that would commend itself generally to the House as a principle.
My hon. Friend the Member for Oldham, East (Mr. Lamond) expressed his pleasure at the new clause and welcomed the special case. He showed some concern about the limitation of special cases. We know that the particular matter to which he referred does not happen to have been selected for debate during the Report stage. He was referring to the other special cases, including the position of Members of Parliament. He said how eager we all are as Members of Parliament to take up for others cases in which certain remedies may be required, whereas we are less eager to take up those matters which concern us as Members of Parliament. Certainly the matters to which he referred will fall to be discussed in other areas of debate, and I am sure that we look forward to hearing them discussed on other occasions. Meanwhile, I take note of his point.
My hon. Friend the Member for Islington, South and Finsbury (Mr. Cunningham), in asking why we deal with the matter in this way, fully accepts that the Service men have a case, but he argues whether this ought not to be done in such a way as to make inequality of treatment more obvious as between different sections of the community. What he has in mind, as I think he might put it, is the maintenance of a greater degree of purity in the tax system by grossing up payment for these warrants so as to include the levels of tax that would have to be paid. I fully accept his point. The 835 main arguments against this suggestion, as my hon. Friend may know, relate to the administrative burdens which arise every time there is an income tax change. As we have seen, income tax can go down as well as up, and there are certain problems in administration in this respect. I shall be happy to discuss this with my hon. Friend, who has always expressed his interest in administrative arrangements, so that I may show him that these problems exist and present some limitations to the way in which we can proceed.
The hon. Member for Folkestone and Hythe (Mr. Costain) asked about the limitation of the kind of leave that is allowed under the new clause. The hon. Member for Isle of Ely (Mr. Freud) followed this by asking about the position of a Service man's wife and family overseas. I confirm that the warrants covered by the new clause include all types of leave warrants; therefore, the new clause includes the ones mentioned by both hon. Members.
§ Question put and agreed to.
§ Clause read a Second time, and added to the Bill.