HC Deb 15 March 1977 vol 928 cc340-8

9.20 p.m.

Mr. Terry Walker (Kingswood)

I am grateful to you, Mr. Deputy Speaker, for allowing me to raise the tax and currency problems which face British teachers who have taken part in teacher exchanges in the United States. I assure my right hon. Friend the Financial Secretary to the Treasury that there are problems for those who have been caught up in that situation over the past year. I know that to raise such a complex problem in an Adjournment debate is very bold, but I also know that my hon. Friend is aware of the problems, because I have corresponded with him on behalf of two of my constituents, and I know that he has sympathy about their problems.

My plea to my hon. Friend is that the Treasury should think again about the problems of Dr. Robert Giddings, of Somerset House, Swineford, and Mr. F. R. Powell, of 20, Church Road, Bitton. They are two of the unfortunate people who happened to be on teacher exchanges in the United States during the past year.

All British exchange teachers in the United States last year were exposed to the severities of the economic situation there during 1975–76. They also had to face the fall in the value of the pound. This is acknowledged by all those who have commented on the situation. Some of those who were on teacher exchanges last year have been featured in articles in The Sunday Times, The Times, and The Times Educational Supplement, and have been on television and radio in Great Britain and the United States.

Evidence has also been passed to me underlining much of the hardship experienced by teachers and their families in the United States during that time. All the time this was happening they were supposed to be ambassadors for the United Kingdom. There is massive evidence that their hardship made the Americans realise that we were very poor cousins indeed. That is not a good thing for us to be advertising in the United States. We are having enough trouble advertising our best product, Concorde, there. Certainly to advertise financially poor teachers is something we could do without, and it should be avoided at all costs.

United States teachers who come to this country receive tax concessions for doing so. While they are on exchange programmes in Europe they can also claim educational expenses. Yet the United Kingdom Government, through the Inland Revenue, now seek to tax the salaries of our teachers for the money they earned while they were in the United States.

The crux of the problem seems to me to be the interpretation of Schedule 2 of the Finance Act 1974. The phrase contained in that provision relates to duties "performed wholly outside the United Kingdom". The problem has arisen over interpretation of that phrase by the Inland Revenue.

My constituent, Dr. Giddings, taught in the United States for a year or more and his duties were performed wholly outside the United Kingdom. The same applies to Mr. Powell, even though they were both being paid by their employer, the Avon County Council. That is where the anomaly arises.

I wish to ask the Financial Secretary to the Treasury whether business executives and others in this country pay British taxes when they spend a year or more outside the United Kingdom. The Inland Revenue's case is that earnings received by a person for a period of absence from an office of employment, the duties of which are ordinarily performed wholly or partly in this country, are treated as earnings for duties performed in the United Kingdom. In other words, a teacher who is given leave of absence to go to the United States under an exchange programme and who continues to be paid by a local authority in this country—in this case by the Avon County Council—remains liable to tax in full on his United Kingdom earnings.

This means that British teachers, who are paid substantially less than their American counterparts, go on exchange to the United States which has a very high cost of living and where they have to pay for their own health insurance, commodity tax on their food, as well as having to meet British income tax for social and welfare benefits which they cannot enjoy while they are in the United States. This is nothing short of madness. Furthermore, American teachers pay much lower rates of tax than do British teachers.

Last year a total of 90 teachers went from the United Kingdom to the United States. At a time when the pound was constantly falling in value, those teachers suffered severe hardship. Therefore, to screw them at this stage for income tax when they return to these shores seems to be beyond belief, and is certainly a great shame.

I wish to ask the Minister one other question. Do military personnel, civil servants and business personnel get clobbered in the same way for British income tax if they are out of the country for a year or more? I do not see why this is happening at the present time. The desperate position of teachers last year was recognised by the Central Bureau for Educational Visits, because it increased to £1,616 the amount of grant and raised the amounts for dependants to £323 and £405 respectively. It recognises the fact that teachers abroad have suffered great hardship.

Dr. Giddings is a handicapped person in a wheelchair. He had to take his wheelchair to the United States, and the Department of Health and Social Security insisted that he should be liable for the upkeep and repair of that wheelchair while abroad. It cost him some 80 dollars in repairs and the hire of a loan chair during the time that his own chair was out of service.

During the time that he was away he did not enjoy the benefits of the British National Health Service. His family were not covered by the scheme that operates under the Department of Health in Washington. I am told that that covers exchange teachers only. My constituent had to pay for medical bills incurred by the family for drugs and other matters, while American teachers in the same situation in this country get free National Health Service treatment. It seems that they are getting all the benefits and we are paying out all the money.

The Central Bureau for Educational Visits in London was approached on this matter, and there is a definite precedent, so it tells me, in previous cases were British exchange teachers have not paid tax. There is no way that I can check that that has been the case, but that is what I am told. If there is a precedent, I ask the Minister to look into it. If there is a precedent, surely it should be honoured at this time.

The West German exchange scheme with America avoids these problems because jobs and salaries are exchanged. My research has shown that the British scheme is the only one where the foreign exchange teacher is paid salary from the home country and pays home taxation in the United States. The United States teacher gets a United States salary and pays United States taxes while in this country.

If we are to overcome this anomaly, teachers must be given freedom from United Kingdom income tax while they are abroad. Before my constituents left this country the Inland Revenue did not seem to be very clear about the exact position. The Inland Revenue was approached by Dr. Giddings's accountants in this regard. I only wish that they had raised the matter with me so that I could have been in a position to raise the matter before rather than after the event.

I ask my hon. Friend to look into these matters once again and to regard them in a compassionate light. On the evidence that has been presented to me, it seems to be a grossly unfair situation that should be quickly remedied. I hope that it will be remedied, but perhaps it may be considered retrospectively for my two constituents and others who are similarly affected. After all, we are talking about a small number of families—namely, 90. I hope that the Minister will be able to deal with this matter. It occurs to me that it should be sorted out so that those who go to teach in America as our ambassadors should not be financially embarrassed.

9.33 p.m.

The Financial Secretary to the Treasury (Mr. Robert Sheldon)

The House will have expected my hon. Friend the Member for Kingswood (Mr. Walker) to have made his case with his customary courtesy, lucidity and, if I may say so, accuracy. From the knowledge that I have it is clear that he has gone into this matter in great detail and has applied himself to assist his constituents to the best of his ability. The House always appreciates and recognises the value of a Member who acts in that way.

The problems of the teacher exchanges that took place last year were clearly dealt with by my hon. Friend. After hearing what he has said, there can be no doubt that considerable hardship was involved in the cases of his two constituents—namely, Mr. Powell and Dr. Giddings. My hon. Friend has referred to two letters, the first being written by Dr. Giddings on 2nd December and the second by Mr. Powell, and my hon. Friend wrote to me on 20th December.

There are really three aspects to this matter. One—the question of grants and payments—does not concern me directly. That is a matter for my right hon. Friend the Secretary of State for Education and Science. The two aspects that concern me and that cover the main points raised by my right hon. Friend are those of tax and currency problems.

I shall deal first with the currency problems of these two constituents of my hon. Friend. We know that there was an exceptional decline in the value of the pound sterling in comparison with the dollar during the whole of the period of last year. Those who had made their arrangements on the exchange rate prevailing at the beginning of their visit, which in the case of these two constituents of my hon. Friend was 14th August 1975, would obviously have found that, however careful their budgeting, they would not have been able to make reasonable provision to cope with the decline in the value of the money available to them.

We cannot contemplate poverty in people sent abroad as ambassadors for this country with anything but the greatest anxiety about their difficulties. We accept that, due to a number of arrangements that United States teachers have been able to make, they have some advantages, quite apart from the fact that they are generally more highly paid.

I turn to the tax problem. Clearly there is room for some changes here. I shall come in due course to the type of changes proposed. My hon. Friend was right to point out that the problems of his constituents really arise from Schedule 2 to the Finance Act 1974, which deals with the position of those who leave this country, as his constituents left this country, to work abroad, but of course they were still being paid by the Avon County Council.

My hon. Friend asked whether business executives and civil servants, if they were similarly affected, would have to pay United Kingdom tax. The answer, broadly, is "Yes". Where a business man has an employment the duties of which are not wholly performed abroad, he will remain liable to United Kingdom tax as well. A civil servant and, of course, anybody else in the service of the Government will be taxed according to United Kingdom tax laws if abroad for not more than a year.

So these teachers are in a difficult position. My hon. Friend tells me that the grant has now been increased, so those who go abroad in future on exchange visits of this type will be protected. My hon. Friend pointed out that United States teachers enjoy the benefits of free National Health Service treatment here and that West German teachers have a number of advantages.

My hon. Friend also said that his constituents had problems with the local tax office where the position was not made quite clear to them. I regret that and apologise for it. I shall be happy to go further into that aspect of the matter.

We have looked at what can be done to put the matter right for the future. It is of little advantage to those who blazed the way, to those who have suffered and find that they are unable to receive recompense, to tell them that the problems will be put right for others. However, we are unfortunately tied by statute and the provisions of the Finance Act 1974. Without commitment, we are hoping that we shall be able to look at the problem along the lines of the consultative document published on 15th December.

The document deals precisely with the matter that my hon. Friend's constituents correctly brought to light. It deals with the position of people who work abroad. The category of person that we had in mind was that involved in exporting. We were thinking of the need to encourage exporting. But it will apply to all those taxpayers who go abroad in the way described by my hon. Friend.

Without going into the details of the consultative document I shall briefly explain the provision from which my hon. Friend's constituents—or others who go abroad in future—will be able to benefit. The proposals in the consultative document have not yet been accepted, but on that understanding I shall tell the House how such people may be assisted.

The provisions would apply to those going abroad for a continuous period of 30 days or more who would receive a 25 per cent. deduction from their overseas earnings which would then be assessed for tax in the usual way. For those abroad for a period of more than 365 days the deduction would be 100 per cent. That means that there would be no United Kingdom tax payable on the overseas earnings of those people. That provision would meet my hon. Friend's objection in full. That is a remedy for the future. The problems of the past were caused by the Finance Act.

I shall be happy to look at the particular problem raised by my hon. Friend of why his constituents were not given the information that might have been made available to them. That information might have enabled them to conduct their affairs in a different manner. Without involving any extra money, the information might have enabled them to plan at an earlier stage for their liabilities when they saw the exchange rate decline, and might have enabled them to assess the seriousness of their financial position. I am pleased to say that we have made arrangements for the arrears of tax to be deducted over a long period of time and that that has been met with a satisfactory response.

Mr. John Cope (Gloucestershire, South)

Will the right hon. Gentleman acknowledge that the provisions of his Act created the problems and that they were considerably criticised at the time? The Minister referred to the consultative document. I hope that he was not implying that the proposals will be adopted in anything like the form of the proposals contained in the document. They might help the cases raised by the hon. Member for Kingswood (Mr. Walker), but they would create difficulties for others, such as exporters.

Mr. Sheldon

The document is clearly consultative. Earlier I made it clear that it was only a basis for discussion. Representations have been made to the Treasury and the Inland Revenue which are being considered. A decision will be made in due course and will be announced during the course of the Budget Statement. Clearly, if the proposals were enacted in the form set out in the consultative document, that would meet the points made by my hon. Friend the Member for Kingswood.

With that understanding, I should be happy to look at the further point concerning the ability of tax offices to furnish the information that does not seem to have been made fully available in this case, and which might have been of some assistance to the two constituents concerned. I hope that we shall be able to find out something in that respect.

With that, perhaps we can take note that the grievance that my hon. Friend's constituents had was one that ought to have been brought to the attention of the House. But, such as it was, it will, if the consultative document is carried into effect, be remedied by future changes.