HC Deb 15 July 1981 vol 8 cc1313-8
Mr. Brittan

I beg to move amendment No. 131, in page 59, line 29, leave out from 'year' to end of line 3 on page 60 and insert 'in the case of a person employed in director's or higher-paid employment fuel is provided by reason of his employment for a car which is made available as mentioned in section 64 above, he shall be treated for the purposes of the Income Tax Acts (and in particular section 204 of the Taxes Act (pay as you earn)) as being paid by his employer in that year an emolument of his employment of an amount equal to whatever is the cash equivalent of that benefit in that year. (2) Subject to the following provisions of this section, the cash equivalent of that benefit shall be ascertained from Table A below where the car has an internal combustion engine with one or more reciprocating pistons and from Table B below in the case of other cars; and for the purposes of Table A below a car's cylinder capacity is the cylinder capacity of its engine calculated as for the purposes of the Vehicles (Excise) Act 1971 or the Vehicles (Excise) Act (Northern Ireland) 1972.

Table A
Cars having a cylinder capacity
Cylinder capacity of car in cubic centimetres Cash equivalent
1300 or less £270
More than 1300, but not more than 1800 £360
More than 1800 £540

(3) Without prejudice to the generality of subsection (1) above fuel is provided for a car if—

  1. (a) any liability in respect of the provision of fuel for the car is discharged;
  2. (b) a voucher within the meaning of section 36 of the Finance (No. 2) Act 1975 or a credit-token within the meaning of section 36A of that Act is used to obtain fuel for the car or money which is spent on such fuel; or
  3. (c) any sum is paid in respect of expenses incurred in providing fuel for the car.

(4) The Treasury may by order taking effect from the beginning of any year beginning after it is made (but not of any year earlier than 1983–84) substitute a different Table for either of the Tables in subsection (2) above.

Orders under this subsection shall be made by statutory instrument subject to annulment in pursuance of a resolution of the House of Commons.

(5) Where paragraph 2 or 3 of Part II of Schedule 7 to this Act applies to reduce the cash equivalent of the benefit of the car for which the fuel is provided, the same reduction shall be made to the cash equivalent of the benefit of the fuel ascertained under subsection (2) above.

(6) If in the relevant year—

  1. (a) the employee is required to make good to the person providing the fuel the whole of the expense incurred by him in or in connection with the provision of fuel for his private use and he does so; or
  2. (b) the fuel is made available only for business travel, the cash equivalent is nil.

(7) For the purposes of section 204 of the Taxes Act no alteration of the cash equivalent shall be made by virtue of sub-paragraph (1) of paragraph 2 of Part II of Schedule 7 to this Act in a case in which sub-paragraph (2)(b) of that paragraph applies or of paragraph 3 of that Part or of subsection (6)(a) above unless the inspector has notified the employer of the alteration to be made.

(8) Subsections (6) and (7) of section 64 above shall apply in relation to the amount referred to in subsection (1) above as they apply to the amount referred to in subsection (1) of that section.".'.

Mr. Deputy Speaker

With this, it will be convenient to take the following amendments to the proposed amendment:

(a), in line 4, leave out from 'of' to 'as' in line 5, and insert 'this Chapter and, with effect from 1983–84, shall also be treated for the purposes of section 204 of the Taxes Act (pay as you earn)'. (b), in line 46, at end insert—

'(6A) If in the relevant year the employee is required to make good to the person providing the fuel a sum falling short of the whole expense mentioned in paragraph (a) of the last preceding subsection the cash equivalent shall be reduced by the amount so made good.'.

(c), in line 51, after 'subsection (6)(a)', insert 'or (6A)'; and amendment No. 132, in page 59, line 39, at end insert—

'(1A) The charge under subsection (1) above shall apply to the exclusion of any other charge to tax not only when fuel is provided in kind but also when arrangements exist whereby the cost of fuel made available to the person or a member of his family or household is not ultimately borne by that person including transactions whereby payment for such fuel is initially made by that person and he is later reimbursed and transactions where credit arrangements exist of which he is able to take advantage.'.

Mr. Brittan

The amendment introduces the Government's proposals for taxing petrol and other fuel provided for use in a company car, taxable under section 64 of the Finance Act 1976. It replaces the existing skeleton clause 66 and contains the detailed rules for charging the benefit and scale tables, by reference to which the charge is to be calculated. The table speaks for itself, but if any hon. Member wishes me to elaborate any point I shall be happy to do so.

Mr. Peter Viggers (Gosport)

I understand that representatives of many companies, including those of the CBI, are worried that it will not be possible to implement these provisions in terms of PAYE. I particularly commend amendment (a), which delays the implementation of PAYE for one year to allow companies to appraise the scheme and to implement it later rather than earlier. It does not alter the implementation of tax; it merely delays the implementation of PAYE. Perhaps the Chief Secretary will say whether the Government are prepared to accept the amendments.

Mr. Brittan

I am sorry to disappoint my hon. Friend the Member for Gosport (Mr. Viggers) but I cannot commend the amendments to the amendment. There are no interim difficulties that would be assisted by a delay in which they could be sorted out. I appreciate that the scheme is not exactly universally popular, but by delaying it for a year we shall not be able to sort out the problems. Although one is tempted to go down the line that my hon. Friend has suggested, it would be an exercise inconsistent with the Government's intentions, having produced a reasonable scheme. I recommend its introduction now.

1.15 am
Mr. Cook

The Opposition take no exception to the clause as drafted, but I take the opportunity to repeat to the Chief Secretary the point that I made in Committee, which is that we still have a rate of tax on cars that are benefits in kind that is more generous than the rates envisaged when the proposals were introduced for the 1976 Act. It is worth making the point that the scale rates provided in the amendment only just overhaul the bottom end of the scale rates that were originally proposed for inclusion in the 1976 Act. In the 1976 Act the cash equivalent for a car with an engine capacity of less than 1,000 cc was £250. We have finally managed to pass a figure that was thought appropriate six years ago.

I appreciate that in his figures the Chief Secretary provides for a 20 per cent. uprating over the previous figure. One appreciates that that is the advance of inflation, but at that rate of increase it will be many years before we get back to the figures that were thought appropriate five years ago and many years yet before we catch up with the figures that the Automobile Association used to demonstrate the cost of maintaining a car and, by implication, the advantage of obtaining a company car.

Although I do not want to stand in the way of the amendment, I take the opportunity to urge on the Chief Secretary the need to make more rapid progress to obtain a cash equivalent which bears a closer approximation to the real value of the car as a benefit in kind.

Amendment agreed to.

Mr. Cook

I beg to move amendment No. 133, in page 60, line 16, at end insert 'other than a travel concession provided by a transport undertaking to its employees'. The amendment has been tabled as an avoidance-of-doubt proposal. I hope that it will be possible for us to obtain an assurance that the amendment is redundant and that it will not be necessary to press it to a Division.

As the Chief Secretary will be aware, the Opposition have no quarrel with the principle of the clause. We accept that it is right and proper that if an employer furnishes a transport voucher to his employees to enable them to buy season tickets for use on the railways, it is proper that the employees should be taxed on the benefit in kind that they receive as a result.

We did not challenge the clause in Committee because we understood that it did not disturb the basis of assessment laid down in the 1975 Act. After all, these are amendments to the 1975 Act. Section 36, which the clause amends, provides that the basis of assessment is laid down that the employee will be taxed by an amount equal to the expense incurred by the person providing the voucher.

On that basis we found the clause acceptable. Since then, as the Chief Secretary will be aware, some disquiet has arisen because it is suspected that the clause may bite on the travel concessions given by transport undertakings to their staff. The disquiet has surfaced especially in British Rail, but, presumably, if British Rail's anxieties are well-founded, by the same token the disquiet will some day apply in the airlines, where by the same method the travel concessions that airlines extend to their staff may also come within tax.

I am happy to go on adding to the list of transport undertakings whose employees might find their travel concessions taxed by the same method that applies to the employees of British Rail. If airline staff were to be taxed on the face value of the travel concessions that they receive, they would face a substantial tax burden.

It may assist the House and the Chief Secretary if I indicate briefly the basis of the travel concession operated by British Rail. It provides a travel concession to its staff in the full knowledge that on most of its trains there will be empty seats. On average, the occupancy rate on trains run by British Rail is less than 50 per cent. The chances are, therefore, that on the great majority of trains which those holding a travel concession join there will be empty seats in which they may sit. If there are no empty seats, British Rail has a marked reluctance to turn away passengers seeking to join a train, even if it is necessary for a passenger to stand all the way to his destination.

It would, therefore, be difficult to establish that any passenger has ever been displaced by a British Rail employee holding a travel concession and travelling at a reduced rate. For that reason, it would be difficult to establish that British Rail incurred any real cost in providing a travel concession to its employees who travel at a marginal rate of nil to British Rail.

There is, of course, administrative cost, but it is more than fully met by the charge which British Rail makes to its employees for the concessionary tickets that it sells to those employees. Indeed, those concessionary tickets are purchased at one-quarter of the face value, and that more than covers the administrative cost. The relative figures are £100,000 for administrative costs and £6 million for the revenue from the sale of those concessionary tickets to British Rail's own employees. British Rail contrives to make a modest profit out of the sale of travel concessions to its own staff and does not bear any net cost as a result of providing that concession.

If the concessions were to come within tax, I can tell the Chief Secretary what would happen. The unions would inevitably come under pressure from their members to obtain cash payments rather than travel concessions, and a cash payment equivalent to the benefit to the employee of the travel concession at present employed. If that were to happen, as the Chief Secretary will apprehend, British Rail would he obliged to meet in full the cash payment to its employees, which would be at real cost to British Rail, to replace a concession which at present costs British Rail nothing. That would, as he will immediately apprehend, place pressure. on British Rail's finances, in turn place pressure on the Government to support British Rail, and ultimately work its way through to an effect on public expenditure.

I am sure that the Chief Secretary would agree with me that that would be a most unsatisfactory and undesirable outcome, and hope that he will be able to assure me and the House that those fears which are entertained in British Rail are unfounded, and that he will be able to give us an assurance that the present basis, which is contained in section 36 of the 1975 Act, will not be disturbed in any way by this clause.

I have a letter which was sent by the Chancellor of the Exchequer to Sir Peter Parker on 12 June. In it the Chancellor says: I understand that you have supplied a considerable amount of evidence which is now being considered by the Inland Revenue and that your view is that that evidence establishes that your board does not incur expense in providing the concessions in question. If that is indeed the case it would appear that the effects of clause 66"— it has now been renumbered as clause 67— on your industry will be neutral. However, I can well understand your concern to see the question resolved with the minimum delay, and have asked the Inland Revenue to keep me informed of progress . That letter was sent on 12 June, which is now a month ago. Some time has passed since then, and the Chief Secretary will be aware that it has become a matter of concern. The amendment was tabled last week.

I hope, therefore, that the Chief Secretary will end the period of delay and uncertainty over this issue and will be able to give us an assurance that there will be no byproduct of the clause which will result in a disturbance to a tax regime applied to British Rail employees which is now of long standing and which recognises the fact that the travel concession is supplied by British Rail at nil or negligible cost. There is no taxable benefit, therefore, in the hands of British Rail employees.

Mr. John Browne

There is at least one case to my knowledge of someone being barred from entering a British Rail carriage. It happened to me, and I complained to Sir Peter Parker. I had to go from a non-smoking compartment into a smokers' compartment.

Mr. Brittan

The amendment raises the question of the impact of clause 67 on lower-paid employees of British Rail. The question arises only if expenses have been incurred by the employers conferring the kind of concessions mentioned by the hon. Member for Edinburgh, Central (Mr. Cook). The extent to which that happens, if at all, is being examined by the Inland Revenue. As a result of that examination, the clause may well have no significant effect on British Rail employees. Whatever the outcome of that investigation, which is not yet completed, the Government do not intend the clause to disturb the status quo. If anything were to be done, it would be in the context of a more general policy on perks for those earning less than £8,500, and not by means of the clause.

The Opposition amendment goes too wide. Clause 67 in any event will not take effect until 6 April 1982. I undertake that in next year's Bill we shall, if necessary, return to the subject and ensure that the clause is amended to exclude from its effects the lower-paid employees of British Rail. In the meantime, the Inland Revenue will not exercise its discretionary power to ask the employers to keep records and submit returns in these cases.

Mr. Michael Shersby (Uxbridge)

How long does my right hon. and learned Friend intend that the Government will perpetuate the artificial division between higher-paid and lower-paid employees at £8,500 a year? It seems curious that in relation to this clause we should still be dealing with this peculiar cut-off point. Has he given further consideration to it during the Bill's passage? Have the Government any intention of removing or revising the limit next year? It emerged two or three years and has been perpetuated. It will cause a great deal of resentment among those members of the community who use cars for business purposes.

Mr. Brittan

We have taken my hon. Friend's point on board, and we are considering what should be done. I am not in a position to announce a decision. Otherwise, it would have been implemented in the Bill. I cannot even promise when we shall complete our consideration or give any indication of what the conclusions will be.

Mr. Cook

The Chief Secretary has given us a fall response. We very much appreciate his undertakings. I understand him to say that it is not the Government's intention that the clause should bite on British Rail's lower-paid employees, but that should that happen he will examine the matter again. In the light of those undertakings, I beg to ask leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Amendment made: No. 134, in page 60, line 33, after 'child', insert

'or any dependent of the employee's'.—[Mr. Newton.]

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