COMPENSATION FOR DELAY IN NATIONAL SAVINGS PAYMENTS (Hansard, 18 July 1979)

§ The Minister of State, Treasury (Mr. Peter Rees)
I beg to move, That the clause be read a Second time.
1814 The new clause is designed to exempt from tax, whether income tax, corporation tax or capital gains tax, various payments of recompense made to the holders of a number of Government stocks. The basis of the clause is that unfortunately between 23 February and 3 May this year industrial action affected two computer centres. Those who held national savings certificates, save-as-you-earn contracts, deposits for the National Savings Bank and premium bonds were not able to withdraw interest to which they were entitled or to recover the capital.
The Financial Secretary, in answer to a parliamentary question on 13 July, announced that the Government thought that it was fair and right, whatever the precise legal position, that there should be recompense for such people. The recompense is to be interest at the rate of 17 per cent. on all delayed payments other than delayed payments of premium bond prizes. In those cases the recompense is to be calculated at the rate of 8 per cent. per day.
The reason for the difference is that in the other cases the holders may have experienced financial inconvenience. They may have made their calculation on the basis that they would obtain interest or capital and they may have had to refinance themselves in other ways. Since holders of premium bonds could not have anticipated receiving a prize, it is unlikely that they would have been put to any financial inconvenience. At that time my hon. Friend made no announcement about the taxability of those compensation payments. On reflection it was thought that there might be a liability to tax, although the question is by no means clear. However, the Government believe that the payments should be exempt from tax.
That is the basis of the new clause. The precise payments or repayments which are to be subject to this exemption are set out in subsection (2) of the new clause. The total tax involved is likely to be about £500,000. It is believed that there will be about 2½ million payments, of which only about 300,000 will involve more than £1. Considerable administrative complications would be created if those small payments were swept into the tax net.
1815 On the grounds of administrative simplicity and general fairness, we thought it right to introduce the new clause. I commend it to the House. It is simple, clear-cut and fair. I hope that it will attract support from both sides of the House.

§ Mr. Denzil Davies (Llanelli)
We welcome the new clause and the reasons for it. We welcome the compensation payments which the Government have agreed to make as a result of the unfortunate strike earlier in the year. We have no quarrel with the way in which the Government have gone about deciding on the compensation payments. It seems to be fair and right. I hope that we should have done the same had we been in office.
The new clause is consequential on the Government's decision. I do not wish to prolong the debate, but perhaps the Minister of State can clarify the position. If compensation is paid in respect of income, and that income is taxable, why should not the compensation be taxable? Why should not compensation in respect of capital payments be subject to capital tax? I am not arguing against the clause but seeking a clearer explanation.

§ Mr. Tam Dalyell (West Lothian)
I understood the Minister of State to say that £500,000 and 300,000 people are involved. I realise the difficulties of simplicity, on the one hand, and equity, on the other, but this seems to represent an extra administrative burden on the Revenue. If there are more industrial problems at Inland Revenue centres, how much extra work will it involve? I speak as one who has a great deal to do with the computer centre at East Kilbride, in my constituency.
I have the highest regard for what that tax centre does and for the speed with which the staff reply to letters. It is often said that tax offices take a long time to reply to Members' letters. That is not my experience. I have the highest regard for the tax office with which I deal most. I am sure that most of my Scottish colleagues will agree that the East Kilbride centre has justified itself.
In this context, £500,000 is a relatively small sum. How much is involved administratively? It is fair to ask that question since the Inland Revenue is overburdened and since complaints have been made by the Inland Revenue Staff Federation.

§ Mr. Peter Rees
I am happy to respond to the right hon. Member for Llanelli (Mr. Davies) and the hon. Member for West Lothian (Mr. Dalyell). The right hon. Gentleman asked me why the recompense is not to be taxed since the capital repayments of the original stocks may have been subject to capital gains tax and the income payments were, in most cases, subject to income tax. Such an arrangement makes for administrative simplicity. There will be many small payments. To sweep them into the tax net would impose an unjustifiable burden on those who receive them and upon the Revenue machine.
The principle behind the provision is that many people will have been disadvantaged financially and may have had to borrow money on which they had to pay interest. Such people would not be able to obtain relief under the existing income tax system. That would not apply in all cases, but we think that it is better to err on the side of generosity. I hope that the House agrees with the Government's approach.
We could have attempted to distinguish between those who were subject to tax and those who were not, or between those who could obtain relief and those who could not. The disadvantage was imposed on those who hold such Government stocks through no fault of theirs. It is right for the Government to err on the side of generosity. Governments are not always able to take that broad and proper approach. I hope that the House will approve of what we have done.
5 p.m.
I am sure that those who work in the Inland Revenue will be pleased to read the comments of the hon. Member for West Lothian on the workings of the East Kilbride office, especially as they come from such a well-informed and practised individual. The hon. Gentleman's plaudits will be much appreciated.
I am sure that the hon. Gentleman will realise that it is difficult for me to make a forecast. Much depends on the precise areas in which and the periods when industrial action takes place. We are all speculating. For example, there would have to be overtime to catch up with a backlog. It is right to take into account the disadvantage and inconvenience to members of the public. These matters 1817 are all rather speculative against my hope and expectation that industrial action will not take place in Revenue and Revenue-related areas.
If the hon. Gentleman chooses to table a question or to write to me, I shall endeavour to give him a fairly precise estimate. I hope that what he envisages will not come to pass. I think that he will agree that this is a somewhat speculative area and that it is difficult for me to give him the precise answer that he is entitled to expect. If anything of the sort should happen again, we shall want to ascertain where the administrative burden is greatest and where the burden on the general public is greatest.
I hope that the House will feel able to accept the new clause.