§ 'Income tax on the holiday pay of an employee liable to taxation under PAYE shall be payable by the employer in two equal instalments on 1 January in the financial year during which the holiday payment was made and on 1 July following. '.—[Mr. Robert Sheldon.]
§ Brought up, and read the First time.
§ Mr. Robert Sheldon
I beg to move, That the clause be read a Second time.
The clause does not conform with the normal run of new clauses with which we deal on Report. Normally new clauses on Report tend to follow a pattern in that they relate to matters that figured in earlier discussions. If, after a number of years, they find favour, they make their way to the statute book.
Here, however, we are dealing with holiday pay, and this is the first time that we have done so. The clause takes account of changes in the pattern of behaviour of people going on holiday and in the way in which the schedule E system operates.
Tax on holiday pay is normally payable on the date of payment of that holiday pay. Most people have a holiday 1093 bonus based on weekly deductions. These are aggregated and the full sum is finally paid just before the annual holiday. There has been an increasing interest in holiday bonuses by a number of employers, who find this an attractive way of showing their concern for their employees, as well as providing money for them at a time when it is of greatest use to them. We know that the schedule D payers will find that they will be paying in arrear whereas schedule E taxpayers will pay not on receipt of payment of their weekly or monthly wage but in advance in the sense that the money is deducted before they receive it.
The Minister of State said that no attempt should be made to show up the differences between the treatment under schedule D and treatment under schedule E; they were both fair methods of taxation. Fair methods of taxation they undoubtedly are, but there are distinct advantages in paying under schedule D as opposed to schedule E. When the Chief Secretary replies, he will not be able to deny two basic advantages that the schedule D taxpayer has over the schedule E taxpayer. The schedule D taxpayer has his expenses allowed on the basis that they are "wholly and exclusively incurred", and the schedule E taxpayer finds that his expenses must bewholly, exclusively and necessarily incurred".We can see that the "necessarily" condition is absent from the schedule D taxpayer's obligations. This makes it very difficult for the schedule E taxpayer to get the advantages of certain expenses.
The other important advantage for the schedule D taxpayer is that he pays some time later. Paying some time later, at a time of high rates of inflation, means that he is, in effect, paying in depreciated currency. That means that the pounds in which he pays his tax are not pounds of the same value as the pounds he earns. The schedule E taxpayer, paying at the same time or even slightly in advance, is paying in pounds worth the same as those that he earns. There are these advantages to the schedule D taxpayer that we would be foolish to ignore.
The amount that people nowadays spend on their holidays is a very large sum indeed. It can be, said that for many people it is the third most important expenditure that they incur. After the house that they buy and the car that they purchase, for many people their expenses for their holidays form their third largest item of expenditure.
It is right that the schedule D advantage obtainable by paying subsequently ought to be considered for those with substantial sums of holiday pay bonuses which can be and ought to be, treated in a more advantageous way than is now the case. If we are to retain respect for the tax system, which it is in the interest of every hon. Member to retain, we have to find some degree of fairness between the different forms of taxation levied upon our people. The new clause is an attempt to show the even-handed way in which the tax system ought to work in people's interests.
§ Mr. Brittan
I am grateful to the right hon. Member for Ashton-under-Lyne (Mr. Sheldon) for using the debate on this new clause as a convenient peg on which to hang some of the pros and cons of the different schedules of income tax. He is right to point out that there are certain advantages in schedule D as compared with schedule E.
Having said that, I must inevitably consider the new clause in the context of the tax system as it is. The right 1094 hon. Gentleman is not suggesting that the whole of the arrangement for schedule D should be made generally applicable. It is difficult to see why holiday pay alone should be singled out in the way that he suggests. To do so would create considerable difficulties and anomalies within the context of the present tax system.
I do not know whether it is necessary to go into all these points in detail, although I should be happy to do so. However, the spirit of the new clause is illustrative rather than seeking action to make a change in the law. If the right hon. Gentleman is content for me to treat it in that spirit, and to consider the implications in the way he indicated, I shall be happy to do so. On the other hand, I shall be happy to explain the sort of difficulties that would arise if such a suggestion were implemented this year.
In the absence of any indication to the contrary, I shall treat the new clause in the former sense. I am sure that the House is glad to have had the opportunity to air this issue.
§ Question put and negatived.