§ '(1) To subsection (1) of section 375 of the Taxes Act there shall be added the words "or in determining whether any person is chargeable under Chapter 2 of Part III of the Finance Act 1976 as being in receipt of a benefit for income tax purposes"
§ (2) This section shall be deemed to have always had effect.'.—[Mr. Wakeham.]
§ Brought up, and read the First time.
§ Mr. WakehamI beg to move, That the clause be read a Second time.
First, I should say that I have no interest to declare, only two sons to educate.
The new clause seeks to amend section 375 of the Income and Corporation Taxes Act 1970. Section 375 exempts income arising from scholarships from income tax. That situation has obtained for many years, and I understand that the Government are not seeking to change it now— 1446 at least not directly. The Inland Revenue is seeking to tax the scholarship as a fringe benefit in the hands of the employee where it is able to contend that the scholarship was awarded by reason of his employment. The new clause seeks to put a stop to that suggestion.
Not all scholarships will he assessed in that way. Scholarships won by children of parents whose total income is less than £7,500 will not be assessed; but, as the total value of higher employment includes benefits, not many will fail to fall into the net. The Inland Revenue is not seeking to attach the benefits-in-kind legislation to general awards which are open to the public at large, even if the child is the child of an employee of the company which set up the award.
The first thing to be said about the Government's proposal and the new clause is that these schemes have been brought about because the direct tax rate is far too high. If the direct tax rate on earnings were lower, the advantages of these schemes would disappear. Tax schemes have grown up over the years as the direct rate of tax has been consistently high. This is all part of the squeeze on middle management as a direct result of high personal taxation.
Why is there a change of view at the present time? There is no change of law. The present situation has been accepted and acceptable for a number of years. If the Inland Revenue has evidence that, along with everyone else, it has been wrong over the years, what is the new evidence that has made it change its mind? I do not pretend that for the Inland Revenue to change its mind on a matter of this kind is as bad as bringing in retrospective legislation, but it is unfair.
It does not need words of mine to encourage or discourage the Inland Revenue's interpretation of this clause being tested in the courts—at least judging by the comments that we read in the press. Every citizen—that includes every taxpayer—has the right to test in the courts what the Inland Revenue is trying to do. I have no comment to make on that, except that it is not an even-handed contest at all. The cost of testing this matter in the courts would be substantial for the taxpayer, but cost is not one of the main considerations for the Inland Revenue.
1447 The Government and the Inland Revenue must recognise that the taxpayer is entitled to rely upon established Inland Revenue practice and to make his dispositions accordingly. One man might go to work for a company knowing that that part of his emolument is an educational scholarship for his child. Another man might go to another company without that prospect in mind. To change the rules in mid-stream is unfair.
It is no good the Government saying that they are attempting to make scholarships taxable only from 14th April. Many people make their dispositions a long time in advance. The honourable aspirations of any man include the desire to do the best that he can for his children and to educate them in the best way that he can.
I can imagine the problems of those parents who find having made their dispositions in a way that they thought proper, reasonable and within the law, that the Inland Revenue interprets the law differently. Such parents will face problems because the plans that they have made for their children will be thrown into jeopardy.
I understand the terms of the trusts when awards are wide enough. When the general public is involved there will be no adverse tax consequences. Many existing trusts come into that category. But even that involves an element of unfairness. At this late hour I do not want to make a pure small business case, but it seems to me that a large company will be able to set up a trust with wide terms of reference covering many children who are not the sons or daughters of employees, whereas a small company will not be able to afford to do that for its own employees or for the public in general. I detect an element of unfairness in that.
One can detect in the Government's proposal a Socialist desire to wipe out all independent schools, or at least an attempt to create another problem for them. The new clause seeks to put at rest the fears and anxieties about the Inland Revenue's action, not on new legislation but on existing legislation.
I suggest that the Government proposal is of doubtful constitutional propriety. The Government are acting in an arbitrary way, they are acting unfairly and they are making another attack on 1448 middle management. It is bound to cause much legislation which can arise only by a degree of incompetence by the Inland Revenue. It will work harshly on many innocent people who made their own dispositions in a way which they thought were proper and within the law. It is another attack by the Government on independent schemes.
The way to get rid of this type of scheme is not by fiddling around with the tax laws in this way but by bringing down the rate of taxation. Then we shculd not need schemes of this type.
§ 12.30 a.m.
§ Mr. PardoeI begin by saying that I have no interest to declare in this matter. As far as I know, no company with which I am involved or am likely to be involved is providing any such scheme.
I am extremely worried by what I regard as the Inland Revenue's independent decision. I do not accept the suggestion by the hon. Member for Maldon (Mr. Wakeham) that this is another attempt by the Government to have a go at independent schools. If it were, I could understand a little bettet the timing of the decision. I suspect that this is a case of the Inland Revenue being ferociously independent of Ministers and apparently going completely contrary to the known views of the Secretary of State for Education and Science.
On 4th February last year the Secretary of State made a clear statement in answer to one of her hon. Friends. She was asked whether she would increase the amount of payments that may be made by employers to students following courses of higher education without reduction of the students' grants. She replied:
I propose to amend the Awards Regulations so that as from September 1977 payments by employers to students whom they wish to sponsor, or by institutions which wish to give scholarships, of up to £500 per annum will not be taken into account in the assessment of mandatory awards by local education authorities.She concluded:I hope that employers and organisations concerned will take full advantage of this change and that as a result more students will be encouraged to choose courses of direct value to industry."—[Official Report, 4th February 1977; Vol. 925, c. 429.]There could not have been a more clear-cut decision to break with past practice and to try to encourage industry to do 1449 something about these kinds of scholarships.In the last week I have had the opportunity to discuss these schemes in detail with one company—Barclays Bank. In the light of what the Secretary of State said, Barclays Bank decided immediately to take up the suggestion of the Secretary of State. In 1977 it set up its student sponsorship scheme for higher education. It gave grants up to a maximum of £500, the amount mentioned by the Secretary of State. They were awarded to students by an independent panel, upon which academics outnumbered the bank's staff vote. The students had to be children of serving staff, pensioners, or widows of staff.
Barclays introduced the scheme, not independent of the Department, not independent of the Inland Revenue. It went to the Department and asked how to operate the scheme, and it got all the advice it could. The Department actually told Barclays that it would help by intervening with the Revenue if the Revenue felt that there were difficulties. That was not necessary, because the Revenue leant over backwards to be as helpful as it could. It approved the scheme without delay or difficulty. It was agreed that the awards were not to be taxable, in the hands either of the students or of their parents.
The scheme has operated for this academic year, but suddenly—we do not know why—the Revenue has turned a complete somersault and has determined that the awards are taxable where the parents' income exceeds £7,500 a year. Why was that not said before? Why did the Revenue not say that to Barclays when it went to the Revenue after the Secretary of State's announcement? It could have said that £7,500 was the tax-free limit, but it did not. Now it has suddenly introduced this stipulation. Barclays Bank has another scheme which is relevant in this connection.
I come now to a point on which I differ from the hon. Member for Maldon. He said that these schemes had come in entirely because of recent high rates of tax. He knows that he and I agree about the inequity of high rates of personal taxation, but in fact many of these schemes have been going for a long time. The 1450 Barclays education scheme started in 1928. I was not around then, and nor was the hon. Gentleman—at least, I imagine not—but I do not think that taxation rates were all that high in 1928. So I do not believe that all these schemes have been introduced specifically for that reason.
The Barclays education scheme started in 1928. It is open to children of staff, pensioners and widows of staff, and exemption from income tax has always been accepted. Indeed, it was confirmed by the Inland Revenue following the Income and Corporation Taxes Act 1970, of which section 375 is the appropirate section.
Barclays Bank now fears that these awards also, which have been in operation since 1928, untaxed, will be taxed as income in the hands of parents if those parents have over £7,500 a year.
I emphasise to the Chief Secretary that these awards have never been seen by Barclays as a fringe benefit for top paid staff. The scheme is open to children of all staff. Yet Barclays fears that the scholarships awarded under the scheme since 1928 will now be taxed. The right hon. Gentleman may say that Barclays has got it wrong and that these awards will not be taxed. But I have described in outline two schemes operated by a major bank, neither of which was introduced as a kind of income tax fiddle. One was introduced in 1928 and the other was introduced as a result of the express encouragement of the Secretary of State for Education and Science and with the connivance and acceptance of the Revenue.
Why has the Revenue made a change now? If these schemes are an emolument—it is perfectly possible to argue that they are—they have always been an emolument. They were an emolument in 1928, and they were an emolument in 1977 when the Secretary of State and the Inland Revenue approved them.
Why have the Government suddenly changed their mind? We shall want some firm comment about that from the Chief Secretary, because he is supposed to be in charge of the Inland Revenue—though it is a God-forsaken job to have, I must say. If the right hon. Gentleman accepts full responsibility and tells us that it was a change of policy on the part of the Government, that is one thing. I 1451 shall have something to say about it if he does, but I do not believe that he will. I do not think that he is in control. I do not believe that he told the Inland Revenue to do this. I do not believe that any Minister has told it to do so. I think that it is all part of the rather twisted narrow political mind of some officers of the Inland Revenue. The Chief Secretary should take them under his own wing and get some control over them.
§ Mr. Christopher Price (Lewisham, West)I know that it is against all the traditions of the House for a Back-Bench Member on the Government side to speak on the Finance Bill after midnight, but since I have never spoken on the Finance Bill before in my life and I intend not to do so again, I hope that I may have a minute or two on this issue.
The hon. Member for Cornwall, North (Mr. Pardoe) speculated whether this was a ferociously independent decision of the Inland Revenue or a Government-inspired move. I have not a clue which it is. I think it significant that the man who now runs the Inland Revenue recently moved there from being permanent secretary at the Department of Education and Science, and there may be some connection there. However it has come about, I support what I understand to be the Government's decision to oppose the new clause and I hope that they will persist in that decision.
The hon. Member for Maldon (Mr. Wakeham) seemed to be saying that because a fiddle had been going on for years it was wrong to stop it. At a time when hon. Members on the Opposition Benches are trying to divert money from the public purse into independent education, which caters for a tiny proportion-4 or 5 per cent. at most of the higher age groups and far less of the lower age groups—we on the Government Benches should remind the Government that there is another point of view entirely and that they should not only oppose the new clause but do much more to divert this flow of £120 million a year from the independent sector back into the public purse.
It is fashionable to refer to manifestos as one approaches a General Election, because every party is drafting a new one. One of the few clauses on which the Government have done nothing in the 1452 manifesto for the October 1974 election was the one in which we promised the country that we would divert the charitable and other income. Hon. Members laugh at the presence of the Chief Whip at my shoulder, but I will not be intimidated, even by good friends of mine like my right hon. Friend.
The manifesto promised that we would divert money derived from charitable and other benefits from the public schools back into the public purse. If this move of the Inland Revenue is the first step in that direction, I welcome it. If it is not, I should like to know what the Government are doing in that regard. We want to go into an election saying that we have completed our manifesto.
§ Mr. Graham PageOn a point of order, Mr. Deputy Speaker. Is it in order for a speaker to be under a threat of some sort by someone outside the Bar of the House?
§ Mr. Deputy Speaker (Mr. Oscar Murton)This might be a question not of a physical threat but of some sort of moral persuasion, but it has nothing to do with the Chair.
§ Mr. PriceAlthough there are folk whose physical proximity I would desire more than that of the Patronage Secretary, I repeat that I am not one to be intimidated. We remain the best of friends however close or distant he chooses to stand.
Just in case hon. Members think that I might be making a party point in mentioning the manifesto, it is worth adding that in 1974 the Education, Arts and Home Office Sub-Committee of the Expenditure Committee examined the whole issue of educational charities and made some recommendations which would have ensured that a large amount of the public funds flowing into independent education as a result of charity law and the attitude of the Inland Revenue towards scholarships might flow back to the public purse.
I realise that the Government do not take much notice of Select Committees. I was very pleased that the members of this Select Committee were absolutely unanimous. It did not have any Liberals on it, but it had Members on it from both sides of the House. Every member of the 1453 Select Committee, from the far Right and the far Left, voted for this proposition.
12.45 a.m.
Therefore, the short point that I wish to make is that although, when all oppose the new clause—I am sure it will not be necessary to vote on it—we shall be doing a great deal of good, I hope that in his very brief winding-up speech my right hon. Friend will not only give the reasons why he will oppose the new clause but will go on to detail all the other measures that the Government intend to take in future, so that this massive subsidy for private education for a tiny proportion of the people can be eroded and the money returned to the public purse, where it can be devoted to the education of the vast majority of our young people.
§ Mr. Graham PageI am sorry that the Government Chief Whip has left the Chamber—I was about to invite him to sit next to me, so that he could better hear what I have to say.
I want to tell my hon. Friend the Member for Maldon (Mr. Wakeham) that his new clause is absolutely unneccessary. The Inland Revenue is wrong to try to enforce the tax on scholarships. There can be no doubt about the wording of section 375 of the Taxes Act 1970. It exempts scholarships from tax. Scholarships are not to be treated as income. If scholarships are not to be treated as income, they cannot be treated as benefits in kind. Benefits in kind are taxed, only because they are treated as income.
Section 375 is perfectly clear. It was not altered by section 61 of the Finance Act 1976. Indeed, the Inland Revenue for two years thought that section 61 did not alter section 375 of the 1976 Act. We have this extraordinary press release from the Inland Revenue on 14th June 1978, headed:
Benefits in kind—scholarships for employers' children.If they are benefits in kind they are income and therefore they are relieved from tax under section 375 of the Taxes Act 1970.Indeed, the Inland Revenue says this in the press release:
Hitherto the Inland Revenue have not sought to treat as a benefit taxable under Section 61 of the Finance Act 1976 on a direc 1454 tor or higher paid employee, the provision by his employer of a scholarship to assist in the cost of the education of a member of his family. They have refrained from doing so on the grounds that Section 375 Income and Corporation Taxes Act 1970, which exempts from tax income from scholarships, precluded such a contention.There the Inland Revenue admits that up to the present it has construed section 375—as I contend—correctly. If it now seeks to construe it in some other way, I hope that the victim will proceed in the courts and defend himself against this totally wrong interpretation of section 375.The extraordinary wriggling of the Inland Revenue in the next two paragraphs of this press statement, where it says that it will not charge scholarship income tax in certain circumstances but will under others seems wholly discreditable in an argument from the Inland Revenue. Let me quote from paragraph 3:
The Revenue will not, however, contend that there is a benefit giving rise to liability under Section 61 where there is only a fortuitous connection between the identity of the recipient of the scholarship and his parent's employment, for example, where a firm sets up a scheme for awarding scholarships which is open to all, but where one of the successful candidates happens to be the child of a higher paid employee of that firm.Where did the Revenue get this out of the Act? Where did it find this exception? How did it construe section 61 as altering section 375 of the 1970 Act in one respect but not in another? It was said earlier that this is a fiddle that has been going on for some years. It is the proper construction of the law as accepted by the Inland Revenue for the two years since the 1976 Finance Act. If it seeks to alter it now without altering, section 375 it lays itself wide open to an action.I suppose that I ought to declare an interest as a solicitor and therefore, one who is interested in litigation. I hope that someone will fight the Inland Revenue if they are the victims of this change of mind.
§ Mr. Peter ReesI congratulate my hon. Friends the Members for Horsham and Crawley (Mr. Hordern) and Maldon (Mr. Wakeham) on tabling this new clause, which has enabled us to debate in a comprehensive and thorough way the rather unattractive press release which the Inland Revenue put out on 14th June 1455 1978. It has also enabled us to hear the first—and, he assures us, the last—contribution by the hon. Member for Lewisham, West (Mr. Price) to our debates on the Finance Bill. I cannot feel that it really will be his last, unless he has been more intimidated by the presence of the Patronage Secretary than he gave evidence of during the course of his speech.
Why the Patronage Secretary should have taken such violent exception to his hon. Friend's intervention I cannot say. I can only assume that in the run-up to a General Election he is a little worried about the effect on the electorate of the uninhibited Socialist pronouncements of his hon. Friend. He is entitled to make that point and I have no doubt that he will be pressing for that view to be reincorporated in the Socialist manifesto. The electorate will be able to judge. It is a pure point of political principle and it is probably valuable that it should be brought out and debated in the open, even at this late hour, as I have no doubt it will be debated soon throughout the country.
I wish to narrow my intervention a little. This press release is of a singularly confused and disingenuous kind. We are entitled to press the Chief Secretary, if it is he who is to reply on behalf of the Government. It could be that he has devolved this unattractive task to his hon. Friend the Under-Secretary of State for Transport, who is sitting beside him, or the Patronage Secretary's representative, who sat dumbly through our debates in Committee and is no doubt wanting to follow the example of my hon. Friend the Member for Norfolk, South (Mr. MacGregor), who, although carrying a comparable load of responsibility, nevertheless managed to reconcile it with grace and adroitness with some extremely felicitous interventions.
May I be permitted to resume my argument? We are entitled to ask the Chief Secretary why it was that the Inland Revenue thought fit, presumably in the summer of this year, to take fresh legal advice on the impact of section 375 and the general liability to tax of employees whose children are fortunate enough to obtain scholarships under schemes set up by their parent's employers. Section 375 is 'lot by any means a new section. It has been on the state book certainly for 25 years and probably more. I have 1456 no doubt whatever that Somerset House has had occasion to examine it on many occasions.
I am bound to say, with a little diffidence, to my right hon. Friend the Member for Crosby (Mr. Page), for whose legal judgment I have the most profound respect, that I do not find section 375 quite as clear as he would have us believe. It does not say that scholarships are not to be subject to tax; it says that they are not to be brought into computation. That is a quite different and much more refined point, but because it is a refined point one assumes—indeed, this may be inferred from the press release—that the Revenue took legal advice on the question a long time ago.
The whole question of scholarships set up by firms for the children of their employees and others has been the subject of litigation from various angles over many years. Indeed, I have had some small part to play myself professionally in this. I do not think that I need declare it as a positive interest but there has been the Barclays Bank case, there has been the Grind lays Bank case, and there has been the Metal Box case, not precisely on this point, but it is fair to infer that since these matters have been litigated by the Revenue it has been giving very comprehensive thought to the fiscal implications of this type of scheme.
§ Mr. Graham PageI should not like to correct my hon. and learned Friend—indeed, he is perfectly right—but it so happens that I have section 375 of the Income and Corporation Taxes Act 1970 before me, and I find that the words are
shall be exempt from income tax, and no account shall be taken as any income in computing the amount of income for income tax purposes.It is exempt from income tax in the section itself.
§ Mr. ReesI do not wish to get involved in a very refined technical argument. I do not know whether I should be in order in doing so, Mr. Deputy Speaker. But the words that I find a little difficult in the section—I give this point to the Chief Secretary—are that it shall be taken into account
in computing the amount of income for income tax purposes.That is the question which may have to be litigated on some occasion. No doubt 1457 my hon. and learned Friend will bend his considerable professional talents to that point when a lay client approaches him, but I do not want to get involved in my right hon. Friend's professional practice or come between him and his professional or lay clients.The only point that I wish to make politically from the Dispatch Box is that this is obviously not a novel point to the Inland Revenue, and therefore I ask why it is that the Revenue should have thought fit to take fresh legal advice. Lord McCluskey, in another place, was asked by my noble Friend Lord Boyd-Carpenter a great number of questions on the fiscal implications and why it was that the Inland Revenue was moved to take additional advice. Lord McCluskey said:
The position is truly this. Schemes of this kind were really quite rare until the last year or two, when there was quite a great mushrooming of such schemes, with new varieties and new dimensions. In the light of this great growth of such scholarships, the legal advisers looked at the matter again and, on this occasion, have offered the advice which the Board of Inland Revenue are really properly obliged to take."—[Official Report, House of Lords, 3rd July 1978; Vol. 394, c. 639.]I hate to say this about a noble Lord who is not in a position to defend himself, but he was either very badly briefed or it was a singularly disingenuous answer. He should know exactly why it was that there was a mushrooming of schemes—
§ Mr. Christopher PriceA fiddle.
§ Mr. ReesIt was not a fiddle. If it was a fiddle, it was a fiddle condoned by the right hon. Friend of the hon. Member for Lewisham, West, who presently presides over the Department of Education and Science. The hon. Member for Cornwall, North (Mr. Pardoe) singled out the case of Barclays Bank. He is quite right in thinking that Barclays Bank is very exercised about this question. It is not only to the hon. Gentleman that it has drawn attention to the singular disingenuousness of the Government's position. Barclays Bank has canvassed many people. Indeed, there are many companies which are rightly exercised by this, because there is not only the effect on private education. It strikes at a legitimate provision that they were making for the children of their employees, and not necessarily their richer employees.
1458 I recognise that to Labour Members who, on political grounds, take violent exception to private education this is offensive, but I must refer them to what their right hon. Friend said. The answer was read out ery carefully by the hon. Member for Cornwall, North; therefore I do not need to read the whole of it again. But in case the hon. Member for Lewisham, West—now that he is free from the travail of speaking with the Patronage Secretary at his elbow—might have overlooked this point, I draw his attention to the fact that she ended by saying:
I hope that employers and organisations concerned will take full advantage of this change and that as a result more students will be encouraged to choose courses of direct value to industry."—[Official Report, 3rd February 1977; Vol. 925, c. 429.]It is plain beyond doubt and I do not think that this point is open to argument. Even the fertile and ingenious mind of the Chief Secretary will find it difficult to construe this in any other way than as a positive encouragement by the right hon. Lady to companies to set up schemes of this kind to encourage their employees, and for employees to take advantage of these schemes, as they legitimately have.
§ Mr. Christopher PriceDoes the hon. and learned Gentleman agree that although my right hon. Friend the Secretary of State for Education and Science talked about courses of direct value to industry, the vast majority of these schemes had nothing to do with such courses but were simply another direct subsidy to middle management with the intention of avoiding tax?
§ 1.0 a.m.
§ Mr. ReesThe hon. Member puts the matter in a highly emotive way. I do not have the evidence, which apparently he has available to him, that all the scholarship schemes set up by companies have been of a purely academic nature and of no direct value to industry. I do not know. I cannot give him that answer. It may be that he should more properly direct the question to the Chief Secretary or to the Secretary of State for Education and Science.
I assume that the right hon. Lady is intelligent, and she must have been aware of the implications of what she was doing. She must have realised that the encouragement would be taken as encouragement 1459 of a general kind. The fiscal advantages, if that is what they are, are really perhaps a form of amelioration and alleviation of the fiscal disadvantages heaped on middle, lower and upper management by the Administration which in other respects the hon. Member for Lewisham, West supports so loyally. I do not think that this should be given quite that narrow view. I do not think that the right hon. Lady will have been taken by surprise when she learned two years later that they had been more generally applied. Indeed, the three cases which I have cited demonstrate that this kind of scheme has been in operation for quite a long time. This was not some new fiddle, as the hon. Member for Lewisham, West described it. It was not some new device. It had been a legitimate way for firms to assist their employees over a considerable period of time.
The direct question which I ask the Chief Secretary—I hope that he will not shirk it—is: why did the Inland Revenue, having countenanced these schemes and having, presumably, read the reply of the Secretary of State, choose at this late stage to take further legal advice? I hope that there will be plenty of opporunity to evaluate the well chosen words which the Chief Secretary will give us. Whether they will satisfy the Opposition remains to be seen. Whether they will impress the country outside remains to be seen.
I leave aside the educational overtones which so agitate the hon. Member for Lewisham, West. I understand his position, though obviously I do not share it. I know the deep detestation that he and some of his right hon. and hon. Friends feel for the private sector of education. Not all of them share that feeling, because we all know that quite a lot of his right hon. and hon. Friends have chosen to patronise the private sector of education, and the Opposition, who believe in free choice, welcome and applaud their emancipation from the prejudices which affect so much of the thinking of Government supporters.
I take the debate back to the fiscal implications and the general administrative implications of this proposal. It is wrong for the Revenue to allow a practice to grow up, to give tacit and almost overt encouragement to it, and, after it has run for a period of years, speciously to make 1460 the pretext of taking fresh legal advice about it. After all, we have not seen the opinion. Perhaps the Chief Secretary will place it in the Library so that we can evaluate it. I am sure that it would be of great interest to my right hon. Friend the Member for Crosby, and the House would be advantaged by his professional view of the rightness or wrongness of the opinion.
It is quite wrong, and destructive of any certainty in this matter, to allow the Revenue do this. There have been no decisions of the courts that should have led the Inland Revenue to have doubts about the correctness of its earlier advice.
Above all, in this matter the taxpayer is entitled to expect a measure of certainty. I do not intend to anticipate tomorrow's debates on retrospection, much as I look forward to them. This is a different point. But the same theme runs through our interventions from the Opposition Benches—that is, that the taxpayer is entitled to know where he stands, and that the Inland Revenue should not capriciously go to counsel and shop around until it finds an opinion that will substantiate what I suspect to be a change of political heart. I do not believe that Somerset House is to blame here. I suspect that there has been a nudge and a wink from on high that it might be no bad thing if the Inland Revenue started to lean on these kind of schemes.
What this tells us about the relationship between the Chief Secretary and the Secretary of State for Education and Science I do not know. It is not for me to speculate. We shall wait for some latter-day Crossman to tell us exactly what went wrong there—or what went right. Perhaps the Chief Secretary will tell us. I am much looking forward to his intervention.
It is wrong for the right hon. Gentleman to give this kind of a nudge and a wink. We do know that the Inland Revenue is charged with the administration of the law. We should be told if it is felt, as a matter of political decision, that this kind of scholarship scheme should be subject to fiscal impositions. This is a perfectly intelligible viewpoint, although it is not one that I share. I do not know what the Patronage Secretary feels about it. I 1461 wish that he could have been encouraged to step over the Bar and give us his views. He was obviously rather unsettling the hon. Member for Lewisham, West. I think that we are entitled to know why the Inland Revenue took this advice, and why, having let these schemes run for a long time, it has chosen to act in this way.
If we are to accept this press release, as I suppose we must, in practical terms—although this is not the right way to govern this country—let us examine it a little more closely. Perhaps the Chief Secretary can give us a view about it—
§ Mr. Dennis Canavan (West Stirling-shire)Get on with it.
§ Mr. ReesIf I am wasting the time of the House I shall be called to order, but not by the hon. Gentleman, whose interventions in these matters have been notable by their absence, thank heavens.
There are two points on which we are entitled to clarification. The release refers to the scholarships being made by reason of the parent's employment. What exactly is meant by that? If one of the qualifications for participation in the scheme is that the child should be the child of an employee, will these scholarships be said to be by reason of the parent's employment? As the Chief Secretary will recall, there is a certain amount of law on that, and he might care to give his view, for example, on the question whether Hochstrasser and Mayes would be relevant to this. We want to know, and so do a lot of people outside the House.
The press release goes on to say that the Revenue will take a benevolent view of the scheme for awarding scholarships is open to all. Does it mean "all" literally? Does it mean that there should be no restrictions at all? For instance, does this mean that a scholarship cannot be limited to members of the male sex, children under 15, or—dare I say it—children who are patrials of the United Kingdom? If there is that kind of restriction, will it encourage the Inland Revenue to impose tax on the child's parent? If this is to be a substitute for legislation, we need guidance from the Chief Secretary.
At the end of the day, I feel that this matter must be cleared up by the courts.
§ Mr. CanavanIt is well past the end of the day.
§ Mr. ReesIf the hon. Gentleman has a notable intervention to make, perhaps he will make it on his feet. We shall listen to him with great interest. I have heard him on a variety of subjects, but never on this one.
§ Mr. CanavanI would rather see you on your backside.
§ Mr. ReesThat is the kind of intervention that leads people outside the House to wonder whether broadcasting was really worth while. It perhaps enables them to judge the hon. Gentleman in his true light, but I leave that to his own electors.
At the end of the day I think that this is a matter that should be tested by the courts; it is a matter for litigation. When we have a definitive conclusion from the courts, we may be able to consider in a more constructive light what kind of legislation is needed—whether the relief should be extended or tightened up. As things stand, I believe that this is a quite improper and impracticable way of proceeding.
§ Mr. Joel BarnettI note the hon. and learned Gentleman's anger with my hon. Friend the Member for West Stirlingshire (Mr. Canavan) about his intervention. If we are concerned about what people outside think about interventions, let me tell the hon. and learned Member for Dover and Deal (Mr. Rees)—in the nicest possible way, because he knows of my affection for him—that over many days and long nights I have heard a lot of elegant rubbish from him, but rarely has it been so repetitive as tonight. I say that with the greatest regard for him, but he has repeated his questions interminably and in his customary elegant manner.
§ Mr. Peter ReesWhat about the answers?
§ Mr. BarnettI shall soon be coming to the answers. The hon. and learned Member said, in his exquisite way, that I should use my fertile and ingenious mind to defend my right hon. Friend the Secretary of State for Education and Science. Frankly, there is no need to use any fertile or ingenious mind, if I ever had one. The fact is that my right hon. Friend has made it clear that what she is concerned 1463 with is to encourage schemes that are open to the public and not to provide benefits that are clearly benefits to the employees—and highly paid employees—of particular firms. This is what we are talking about.
If the hon. and learned Gentleman is seeking to pretend that these schemes are not means of providing benefits for highly paid employees, why was he so concerned to make the point that these schemes are brought about because of high levels of taxation? He well knows that these schemes are created deliberately and with the clear belief, as the right hon. Member for Crosby (Mr. Page) said, that they would not be taxable in the hands of the family of the employee.
Let us be clear what we are talking about. It has nothing to do with the aspirations of parents, which I fully understand, to provide a decent and proper education for their children. We are talking about whether firms are giving employees a benefit which is similar to remuneration in law. New clause 53 is designed to ensure that scholarship income awarded to a director or a higher-paid employee or a member of his family by reason of that employment should not be taxed as a benefit. It is difficult to tell, but the cost could exceed £5 million, and if the new clause were accepted we do not know how many more schemes would be introduced and how much greater the cost would be.
1.15 a.m.
The hon. and learned Member for Dover and Deal referred to what was said in another place recently in reply to Lord Boyd-Carpenter. The hon. and learned Gentleman said that he thought that there was an element of retrospection involved. I note that the hon. and learned Gentleman looks quizzical when I use the word "retrospection". I understand his difficulty. When he speaks at length, he gets carried away with his own verbosity and is never too clear what he is saying. That is the word that he used, and I am sure that that is what Hansard will say, because I heard the word and took a note of it.
There may have been some misunderstanding about that answer in another place. Let me make clear that in practice the change will not apply to awards before the date of the Inland Revenue 1464 announcement. It will apply to awards made after that date under schemes that were in existence before then.
I was asked why the Inland Revenue sought to deal with the matter at this time. I regret that the hon. Member for Cornwall, North (Mr. Pardoe) used phrases such as "the narrow, twisted minds of some Inland Revenue officials". I would not dream of referring to some of his hon. Friends, who are now at home tucked up in bed, as having narrow, twisted minds. It is not helpful to refer in that way to officials who serve this country well in collecting revenue on behalf of the Crown.
§ Mr. PardoePeople choose their occupations. They choose whether to be tax gatherers or not. I am aware that the New Testament enjoins us to love tax gatherers, but that is a part that I have never accepted and never will.
§ Mr. BarnettI doubt whether that could be construed as an apology.
§ Mr. PardoeIt is not.
§ Mr. BarnettThe hon. Member for Cornwall, North chose to be a Member of Parliament, but that does not make him a narrow-minded and twisted-minded Member. Even if we did not have a pact, I would not dream of calling him those names. I regret the name-calling in which he indulged.
The hon. Gentleman referred to the Barclays scheme. Perhaps we should both check what the scheme involves, but if it applies only to employees and their families, in my view—and I shall return to the legal aspect of it—it is a benefit and must be a benefit for the employee who has been saved the expense of meeting the fees and the income that is provided for the member of his family.
Section 375 of the Taxes Act exempts scholarship income in the hands of a person receiving full-time instruction in university, college, school or other educational establishment. There was a slight legalistic difference of opinion between the hon. and learned Member for Dover and Deal and the right hon. Member for Crosby about the interpretation of the words in that section. I have a lot of respect for the right hon. Gentleman on many matters and I agree with him that this is a matter that should be tested in 1465 the courts. He was saying that his hon. Friend did not need to move the new clause because if the matter were tested in the courts, the money would not be taxed.
Some years ago, the Inland Revenue was advised that the exemption provided by section 375 precluded an assessment on employees as a benefit, but since then schemes have proliferated and in the last couple of years, 50 such schemes—perhaps more—have been set up.
§ Mr. PardoeShe has encouraged that.
§ Mr. BarnettI was brought up in a poor neighbourhood, where "she" was a derogatory expression. We are talking about my right hon. Friend the Secretary of State for Education. I would never refer to her as "she". She is a right hon. Lady, a Member of this House. She is not a "she". She was not seeking to encourage firms to provide benefits in kind untaxed for their employees—and high-paid employees and directors at that. She was not doing anything of the kind, as I am sure she would be the first to say to the House.
The schemes have proliferated. The hon. and learned Member for Dover and Deal asked why the Inland Revenue had taken further legal advice at this stage. The responsibility of the Revenue under any Government is to collect taxes that it believes that it is legally required to collect, and rightly it took legal advice in this case. That advice was that it would be right now for the Revenue to contend that there is a benefit in these schemes. If the right hon. Member for Crosby is right, and the Revenue's legal advice is wrong, he or others are perfectly at liberty to test the matter in the courts, as he himself recommended.
§ Mr. Graham PageWhat I cannot understand is how proliferation of the schemes changed the law.
§ Mr. BarnettIt did not. What changed was the advice that was received. The right hon. Gentleman disagrees with that advice. He can use the law and the appeal system to see whether he is right or whether the advice given to the Revenue is right, but I make it clear that, in the case of bona fide schemes that are open to the public generally, not just to employees—by employees I mean higher- 1466 paid employees—and where the salary and benefit combined is less than £7,500 a year, there is no question of the taxation of a benefit. It is awards to members of the family of the higher-paid, not awards to the employees themselves, that one is talking about. If the firm makes an award of a scholarship to an employee for, for example, post-graduate studies, that is not taxable unless it is so large as to qualify for remuneration rather than as scholarship income.
The hon. and learned Gentleman asked me the meaning of the Revenue press release. Where awards for fees and maintenance income in private schools and universities are made—and they are limited to employees' children—I believe that that must be the same as remunerating an employee. But again that will have to be tested in the courts. If it is not the same as remunerating an employee, it is an odd situation when the employee is being saved the expense of maintaining his child in private education or university.
Section 375 was intended to ensure that the recipient of a scholarship was not taxed, but it was never intended that it should exempt part of an employee's remuneration, and given the mushrooming of the use of what one can only consider as a device for using the provision in a way never intended, I believe that the Inland Revenue was right to take new legal advice, and that when it got the advice that it was a benefit in kind it was right to tax it.
The Revenue announced that that was what it was proceeding to do, and that it was taxing the benefit from that date.
Of course, some awards will be made on merit and, if they are open to the general public, will not be taxable. The award will be for the student and not because of the parents' employment. But if it is only to an employee, it is right that the employee should be taxed.
I am bound to say that I find the arguments that have been put forward in support of the clause wholly unacceptable. I hope that the House will reject the clause.
§ Question put and negatived.
§ Mr. Joel BarnettI have the feeling that the House may not want to proceed much further tonight. I am sorry about that. The hon. and learned Member for 1467 Dover and Deal (Mr. Rees) looks very tired. Therefore, I beg to move, That further consideration of the Bill be now adjourned.
§ Question put and agreed to.
§ Bill, as amended in the Committee and in the Standing Committee, to be further considered this day.