§ Motion made, and Question proposed, That this House do now adjourn.—[Mr. Berry.]12.20 am
§ Mr. Peter Hordern (Horsham and Crawley)
I wish to raise the case of my constituent, Mr. W. A. Denby. Mr. Denby married in July 1954, but unhappily his marriage did not last long and his wife left him in December 1955. At that time, and until he retired, Mr. Denby was the caretaker at the Warn-ham Court school in my constituency. The school was run by the Greater London Council. Mr. Denby did not want a divorce or a judicial separation; he simply wanted his wife back. But after many years he had to accept reality and he got a divorce. The decree became absolute in December 1976.
Mr. Denby retired on grounds of ill health on 20 March 1976, when he was 61. His service to that date was added to by the period—the three years and 251 days—up to his sixty-fifth birthday to give him a total reckonable service of 25 years and 288 days. This formed the basis for his pension and lump sum payable under the Local Government Superannuation Regulations of 1974. But when, in 1977, Mr. Denby got his lump sum benefit, he found that it had been reduced by £1,446.26, leaving him only £1,819.44. This deduction came as a severe shock to him.
The GLC explained to him that it was bound by the local government regulations of 1974, which provided that in the case of a married man there should be a reduction of two-eightieths of pension able remuneration for each year of service. This would apply unless Mr. Denby had got a judicial separation in circumstances in which the court did not make an order for him to contribute to support his wife, and the deduction would be made up to the date of the separation. But, of course, Mr. Denby did not want a separation. He wanted his wife to return to him.
When Mr. Denby eventually got his divorce there was no order for maintenance for his wife, but by that time it was too late. Even though Mr. Denby had lived with his wife for only just over a year, in the eyes of the GLC he had been married for 22 years. The council's argument was that if Mr. Denby had died the 395 GLC would have had to pay a pension to his widow. This pension would have been met by a two-thirds deduction from his lump sum entitlement before 1972, although since then there would have been no such deduction.
I do not quarrel with the fact that the GLC had a potential liability and that it was up to it to meet it by some means. I think that the method of meeting the liability was wrong and that there should have been a different pension contribution for a married man compared with a single person. I do not think that it should have been met by a post-retirement deduction from the lump sum entitlement. Indeed, this has since been accepted.
However, in the eyes of the GLC and the Department of the Environment, Mr. Denby was a married man, but not, I fear, in the eyes of the Inland Revenue. That is why I have directed this debate to the Treasury and why I am so glad to see my hon. and learned Friend the Minister of State here tonight. The Revenue had not accepted that Mr. Denby was married, even though the Department of the Environment had. It said that Mr. Denby was, in fact, separated from his wife, even though he did not get a judicial separation. That being so, Mr. Denby was eligible not for the married person's allowance but only for the single person's allowance. This was applied from 1957–58 to the present day. Mr. Denby has been deprived of his proper allowance for more than 20 years because he did not get a judicial separation. Even under the Revenue's own rules he was, I think, entitled to something.
I wish to quote from a letter I received from the Minister of State in another place dated 19 September in which Lord Cockfield said:A married man is responsible under the common law for maintaining his wife until they are legally separated. Thus, in the interim period between permanent separation and divorce the tax system recognises this fact by continuing to give the married man's allowance in circumstances where the husband can show that, despite their physical separation, he continues to fully maintain his wife by voluntary contributions.Mr. Denby made a voluntary contribution. It would have been open to him at any time to have obtained a judicial separation. If he had done so, his lump 396 sum entitlement from the GLC would have been larger by more than £1,400. This seems to me to follow the criteria laid down by the Revenue itself. Lord Cockfield said in his letter:Payments made under a court order or similar binding agreement for the maintenance of the wife are deductible on a husband's total income for tax purposes and are therefore not taken into account in these circumstances.The pension arrangement that my constituent, Mr. Denby, had entered into was certainly a binding agreement and therefore, at the very least, the contributions that he made ought to have been deducted from his income before tax. It is true that the Revenue rules say that to qualify for the married allowance a man should fully maintain his wife by voluntary contributions. Mr. Denby did not do that. Even so, there is apparently no statutory definition of what is meant by "wholly maintained"—the term used in the Taxes Acts—but the Revenue takes the view that if a wife is entirely without resources a fairly modest allowance may satisfy the test.
Even by the Revenue's own rules, Mr. Denby should have had the £1,400 deduction allowed lot tax purposes, if not the full married person's allowance. I do not know how my hon. and learned Friend intends to reply to the debate. As the House knows, he has a broad and genuine sympathy with all matters affecting taxpayers. I dare say that he will defend the Revenue rules. All I say is that if a man has a large sum of money removed from him by one Department because it says he is married but he is not allowed to claim a married allowance because the Revenue says he is single, there must be something wrong with the rules or with the Local Government Superannuation Act, and possibly with both.
The fault, of course, lies with the legislation. Two important Departments have a different definition of what constitutes separation. I do not see why Mr. Denby should suffer from this difference. He has suffered a plain injustice that ought to be put right.
It can be argued that if he had ordered his affairs differently, he would not have suffered this treatment. Not everybody is fully conversant, as my hon. and learned Friend is, with every aspect of the Local Government Superannuation Act or even with the Revenue 397 rules. They should at least be consistent.
That is one of the difficulties inherent in our legislation. Too many Bills are drafted to reflect the views of one particular Department without recognising that they might run contrary to the legislation of another Department. That is our fault and nobody else's. It is certainly not my constituent's fault. We should remember that laws are made for the convenience of men and not the other way round. I hope, therefore, that my hon. and learned Friend will be able to suggest some redress for my constituent. He must see to it that this does not happen again.
§ The Minister of State, Treasury (Mr. Peter Rees)
I am sure that the case of Mr. Denby will command the sympathy of the whole House, not least because it has been put so attractively and persuasively by my hon. Friend the Member for Horsham and Crawley (Mr. Hordern). However, I am not entirely certain whether I can accept my hon. Friend's analysis of the situation or that the fault, if fault there be, should be laid at the door of the Department that I am privileged to represent.
Perhaps I should start with an analysis of the income tax position. To do that one must look at section 8 of the Income and Corporation Taxes Act 1970, which accords a special allowance to married men. It is a provision of considerable antiquity, going back at least to 1918. I shall later cite the rationale put by Mr. Austen Chamberlain, the then Chancellor of the Exchequer, when moving the provision.
A married man's allowance is given to a man if he can demonstrate that he has a wife living with him or has a wife wholly maintained by him and he is not entitled to a deduction for any sums paid as maintenance to her. I submit that, even on my hon. Friend's attractive formulation, Mr. Denby did not satisfy either test. He clearly did not have Mrs. Denby living with him from about 1955 or 1956. Nor—and perhaps this is the point at which I part from my hon. Friend's analysis—was he wholly maintaining Mrs. Denby. He certainly did not claim to have any deduction for any sums paid as maintenance.
398 I must pause on the question whether Mr. Denby was wholly maintaining his wife. I shall come to the pension provisions. He had a deduction made from the lump sum paid to him on retirement, but he could not be said to be maintaining Mrs. Denby year by year. I am not privileged to know how Mrs. Denby maintained herself and perhaps my hon. Friend does not know either. He has certainly not told the House.
All that we can agree on is that when Mr. Denby retired from his post as a caretaker with the GLC in March 1977 the lump sum to which he was entitled was reduced by the considerable figure of £1,446.26, but that does not constitute maintenance by Mr. Denby of Mrs. Denby. I can understand the circumstances in which Mr. Denby was compelled to submit to that deduction, but it was not under the income tax legislation.
My hon. Friend contained his argument tautly and succinctly and did not enlarge the debate. We could discuss the rationale underlying the provision, which is to recognise that the strain on income is greater in the case of a married man than in the case of a single person. The married man has to maintain two people—himself and his wife. That is an intelligible rationale and has not been challenged.
I cannot pretend to have read the reports of every Finance Bill debate since 1918, but the position has generally been understood and fairly simply applied. There is no great wealth of decided cases on fine points as to what constitutes maintenance. Certainly, I could discover no case that suggests that Mr. Denby's case falls within that provision.
Seeking to do the best that I could for my hon. Friend's constituent, I turned to the superannuation position. I am in some difficulty, because this is not a matter for the Treasury. My hon. Friend has chosen to aim the debate at the Treasury or the Inland Revenue.
The position on superannuation is a matter for the Department of the Environment, which oversees the rules of the superannuation funds. The rules are on the whole agreed between local government employees and the staff associations. I understand that, under the rules which govern this fund, when a married man retires his lump sum retirement allowance is reduced for the period before 399 1972 when he was married, or, if at the point of retirement he was a widower, divorced or judicially separated, it is reduced for such part of the period before 1972 when he was a married man. The magic of 1972 is that apparently thereafter GLC employees were not compelled to contribute to any pension for their wives or widows.
The rationale for the first reduction in the case of a married man upon retirement is that should he have a widow surviving him on his death there would be a pension for her. I concede that that did not cover Mr. Denby's case because, regrettably, by the time he came to retire he had—in December 1976—become divorced. He did not retire until March 1977.
Under the second leg, however, there was a case for reduction in his lump sum because at any rate up to the point when he was divorced there was a contingent liability on the Inner London Education Authority to pay Mrs. Denby a pension. The GLC was indifferent to the fact that Mr. and Mrs. Denby were separated. So far as the council was concerned, no divorce had taken place and so there was a contingent liability. It was on that basis that a deduction was made when Mr. Denby retired in March 1977.
Mr. Denby may claim that this was a harsh, disadvantageous provision and that the deduction was too big for the contingent liability which in Mr. Denby's case never matured. I do not think that it is proper for me to debate the merits or demerits of that proposition. I am not charged with any particular responsibilities. I am here, to put it crudely, to defend the position of the Inland Revenue. That charge could more properly be put to the Department of the Environment. I can only tell my hon. Friend that this is a point in the rules that has never yet been raised by the staff associations. I am not necessarily encouraging them to do so. It does not seem to be a matter of general concern for those who, like Mr. Denby, are subject to these rules.
In drawing the threads together, the first question I ask is: should the pension regulations for GLC employees follow the tax code? Should there be a precise correlation between the rules of the pension fund and the conditions set out in section 8 of the Act? That is a matter 400 for the Department of the Environment and for the employers and employees. It is not necessarily a matter on which I should care to express an opinion, although I do not see any particular reason why there should be. These matters can be adjusted by negotiation, and Mr. Denby can perhaps argue that he has not been well treated.
Let us turn the proposition round another way. Should the tax code follow the pension regulations? I am sure that my hon. Friend would hardly argue that the tax code, which is designed for the generality of taxpayers, not just for GLC employees, should be made to fit the circumstances of the pension regulations.
I say, not with smugness, because I understand the feeling of deprivation, that this matter cannot be laid at the Inland Revenue's door. The Revenue is operating within the statute. If it is not, it is open to Mr. Denby to take the matter to the appeal commissioners. He has not chosen to do that. I do not quarrel with that as I know that the law delays and is expensive.
The Inland Revenue has properly administered the code. I am sorry that Mr. Denby should have a sense of grievance. His case has been most ably put by my hon. Friend. I hope that, in turn, I have put the problem in perspective and that my hon. Friend will explain to Mr. Denby.
§ Mr. Hordern
I do not dispute that what was done was within the statute. However, two statutes are involved in the case. The statutes define married and separated persons differently. Mr. Denby falls foul of both. It is clear that the statutes are wrong, not Mr. Denby. The simple position is that Mr. Denby found that he was making a substantial contribution unwittingly, in the potential event of there being a liability for his widow if he had died before her. Under the Revenue rules there should be a deduction from earnings before tax so that there is an allowance for the steep payments from which Mr. Denby has suffered. I hope that, on reflection, my hon. and learned Friend will be able to look at that with more care when he has had more time.
§ Mr. Rees
I can assure my hon. Friend that I have given deep thought to the problem. I have examined it from every possible angle.
401 I cannot pretend that all our Revenue provisions are perfect. It would be arrogant to do so. I am reasonably satisfied that the Revenue provisions are broadly based, intelligible and reasonably applied and have commanded a certain amount of acceptance over the years. My hon. Friend has deployed a powerful case for looking again at the regulations which the Department of the Environment oversees. I am not charged with that responsibility.
I regret that I cannot respond more positively to my hon. Friend's invitation. The debate to which I am charged to reply is about income tax and the case of Mr. Denby. I have done my best to deal with the income tax argument. I have trespassed a little further and dealt, perhaps not adequately, with matters for which the Department of the Environ- 402 ment is responsible. I am sure that the report of the debate will be read by colleagues in that Department and that they will take account of it.
I am here to defend the Inland Revenue. I hope that on reflection my hon. Friend will accept that it has operated not only within the letter but within the spirit of the tax code in this case. I recognise that there may be a legitimate or deeply felt grievance that this is not a matter for the Revenue and that perhaps the regulations governing the retirement provisions of GLC and other council employees could be more liberally drawn. However, that is really material for another debate.
§ Question put and agreed to.
§ Adjourned accordingly at sixteen minutes to One o'clock