'In Schedule 7 to the Finance Act 1977 (Earnings from work done abroad) there shall be inserted:—
6A. For the purposes of this Schedule section 184(3)(a) (duties of any office or employment under the Crown treated as performed in the United Kingdom) shall not apply to any duties performed outside the United Kingdom if in respect of the period which those duties were performed the person performing the duties was not in receipt of an allowance to which section 369 of the Taxes Act applies. In applying this paragraph any area designated under section 1(7) of the Continental Shelf Act 1964 shall be treated as part of the United Kingdom."'. —[Mr. Wrigglesworth.]
§ Brought up, and read the First time.
§ Mr. Wrigglesworth
I beg to move, That the clause be read a Second time.
As the House knows, I have an interest in this matter as an adviser to one of the Civil Service unions. The clause seeks to remove a discrimination in the opposite direction to that which my hon. Friends described in the debate on new clause no. 30.
1422 The Finance Act 1977 introduced changes in the rules governing the taxation of earnings of employees living in the United Kingdom but spending short periods abroad on duty. These changes gave significant relief from income tax to a wide variety of employees with jobs which involved travel, but, because of a technicality, Crown servants alone were excluded. In my view and that of the national staff side of the Whitley Council, that exclusion is both unjust and indefensible. The new clause provides the opportunity to rectify the anomaly.
Under the provisions of the Finance Act 1977 an employee who works abroad for a total of 30 days or more in a tax year, whether continuously or in aggregate, is now entitled to a deduction of 25 per cent. from the earnings for the duties performed overseas. The anomaly that I seek to rectify occurs in the application of this 25 per cent. deduction. Because of the mistaken impression—there can be no other explanation—that all Crown servants who would otherwise have come into the ambit of the new rules were already in receipt of the non-taxable foreign service allowance, all Crown servants were excluded from the new relief when it was introduced in the 1977 Act. But in fact many United Kingdom-based Crown servants whose work takes them abroad do not receive the allowance. The object of the clause is to put this group of Crown servants on the same basis as other United Kingdom employees.
In practice, the effect will be to extend the 25 per cent. deduction to those Crown servants who are out of the country on short visits abroad on official business which in total aggregate to 30 days or more in a tax year. Crown servants who are permanently abroad—for example, embassy staff and others—qualify for the foreign service allowance and will thus, rightly in my view, be excluded.
I should stress, in view of the comments made by some hon. Members in the debate on new clause no. 30, that I am not asking for civil servants to be put in a privileged position. On the contrary, I am asking for equal treatment with that now numerous class of employees with jobs based in the United Kingdom which involve a significant amount of foreign travel.
1423 The present inequity shows itself, for example, when a joint delegation, composed of members from a nationalised industry, trade unions, the professions and United Kingdom based civil servants, attends an international conference or goes as part of a trade delegation to help boost exports from this country. All members of the delegation, except for the civil servants taking part, would have the days spent abroad counted towards the 25 per cent. deduction and get the relief. That is not fair and cannot have been intended by Parliament when the 1977 Act went through. It is discriminatory and inequitable. I hope that the Government will support my attempt to rectify this situation by accepting the new clause.
§ Mr. Hal Miller (Bromsgrove and Red-ditch)
I should also preface my remarks by declaring that I am the honorary consultant for parliamentary affairs to a Civil Service union, but I do not think that has unduly coloured the remarks that I am about to make on the new clause.
This is one more example where the Government's attempts to get rid of any possible abuse relating to the taxation of earnings derived from work abroad has led to the creation of further anomalies about which the hon. Member for Thomaby (Mr. Wrigglesworth) has just spoken. I find it a matter for disbelief that people attending conferences abroad should qualify for tax relief. I had imagined that the tax relief was intended to assist and promote the activities of business men and others abroad seeking to maximise this country's foreign earnings, not those who go abroad to attend conferences.
A regrettable incentive has been introduced by the Government for people to prolong their conferences and business trips. During a recent parliamentary delegation I visited an embassy and I was told that business men and others seemed to be spending rather longer than necessary abroad in order to qualify for the deduction.
I am not wholeheartedly in favour of the present system, nor of extending it to civil servants, but there is a serious anomaly which should be considered. I am sorry that no Minister from the Civil Service Department is here today to take 1424 part in the debate. My suggestion is that the eligibility for foreign service allowance should be reviewed. There is a good case for that. The Think Tank report, despite its being discredited in some of its recommendations, is likely to lead, according to press comment, to an increase in home-based civil servants going abroad. This anomaly is likely to become more extensive and more resented.
It might be better for the Government to say that the conditions of eligibility for the foreign service allowance will be reviewed, rather than that the new clause should be carried. I fear that the new clause seeks to perpetuate an unsatisfactory situation regarding eligibility for a reduction of tax merely for visits and other conferences which are not designed to promote our foreign earnings.
§ Mr. John Ovenden (Gravesend)
I support the new clause. I declare an interest as adviser to the Society of Civil and Public Servants.
The intention of the new clause is not to place civil servants in a privileged category for taxation purposes. It is intended to place them on the same level as everybody else and to give them the advantage of the tax concessions which already apply to people in private industry. It is not our job to argue about the merits or demerits of that concession. It is on the statute book. Since that concession exists it is wrong that one group of workers should be debarred from taking advantage of that concession.
The Government's attitude has, perhaps, been based on a misconception—that all civil servants abroad enjoy a tax-free foreign service allowance. That is true only for civil servants who spend four months or more overseas. It does not apply to civil servants who spend shorter periods abroad.
It could be argued that the tax concession was intended to promote our export drive and to give special help to those involved in such promotions. But that is not the way in which the concession is framed. It is available to everybody in private industry involved in overseas visits. Only public servants are excluded. That is discriminatory and unjust. I hope that the Government will accept this sensible new clause.
If the Government do not accept it I shall be interested to hear why they 1425 believe that this discrimination against the public sector should continue. It seems only just that a concession that exists in private industry should be extended to people in the public sector, too. People in the public sector have suffered a great deal in the past from Government discrimination on all sorts of issues, not least in pay. I hope that the Government will not continue the extension of that policy into taxation.
§ Mr. Robert Sheldon
The new clause is aimed at remedying what my hon. Friend the Member for Thornaby (Mr. Wrigglesworth) sees as an injustice to civil servants. Crown servants generally obtain tax-free allowances for working abroad, and they are held to be compensation for the duties they carry out while out of this country. The clause offers Crown servants who work overseas a choice between tax-free allowances and tax relief under the Finance Act 1977. My hon. Friend was right in pointing out that the justification for excluding Crown servants was that the 1977 Act was intended to give incentives to those at the sharp end of exporting, as my right hon. Friend the Chancellor of the Exchequer put it at the time.
My hon. Friend is proposing a broad relief which goes further than that. To extend the provision to civil servants would be quite beyond the original intention of the 1977 Act. Moreover, under the new clause Crown servants who were away from this country for a year or more would get total tax exemption on their salaries and would not be liable for taxation by the host country.
That is the distinction between the private employee and the Crown servant. The Crown servant who was away for more than a year would get total exemption on his salary, but he would not be liable for tax to the host country. On the other hand, the private sector employee would get exemption from the United Kingdom tax for more than a year's stay abroad, but he would be liable to tax by the country in which he worked. The Crown servant, therefore, would have a distinct advantage in those circumstances.
I believe that the distinction we have drawn is justifiable. I understand the problems concerning the reliefs given in the 1977 Act. It would be wrong to 1426 extend those reliefs in the manner sought, and I regret that I am unable to accept the new clause.
§ Mr. Wrigglesworth
My right hon. Friend's reply has illustrated the misunderstandings which arise over this matter. The allowances to which he referred apply only to those working abroad for over four months, as I understand it. That is not the category of people we are seeking in this clause to assist. We are trying to help those who work abroad for much shorter periods. We are not seeking to help those who receive the foreign service allowance. Clearly, they are not entitled to this sort of concession. We are concerned with a different category.
My right hon. Friend said that these provisions were introduced to assist exports. It is, however, extended to everyone, irrespective of whether they are working to assist exports, including—and here I correct a false impression that may have been given—those in both the private and public sectors who are working abroad for 30 days and may not be connected with exports.
Secondly, there are civil servants in this category who are helping our export drive. They are going abroad to trade fairs and other such events, and one would hope, therefore, that the same sort of reliefs as are given to members of the staff of nationalised industries and private companies could apply to them, too.
If the Financial Secretary is not prepared to accept the new clause tonight, I ask him to think about it again and consider with the national staff side, possibly through the Civil Service Department and his other right hon. and hon. Friends, whether some agreed solution can be brought forward in the next Finance Bill so that the injustice which civil servants believe to exist may be put right in 1979.
§ Question put and negatived.